PRELIMINARY PROGRAM OF THE ALLIED SOCIAL SCIENCE ASSOCIATIONS JANUARY 3-5, 2016, SAN FRANCISCO, CA

The Great Depression of the 1930s was followed by a series of regulatory and policy decisions that laid the groundwork for a twenty-year post-war expansion with stable prices and stable financial markets. The recent crisis has also been characterized by regulatory and policy decisions aimed at isolating government from responsibility for financial instability and increasing the role of the Federal Reserve in regulatory and supervisory matters. While financial markets have recovered, they remain highly volatile, and the recovery in real activity has been feeble. Are governments, politicians and economists less able to draw the appropriate lessons from the recent crisis than they were in the 1930s?

It is relatively well accepted that transactions costs weigh upon water markets and deter some transfers. But despite the fact that this type of cost appears to be key to a low level of water exchange, only few studies explicitly implement such a cost in their analyses. In the present paper we intend to fill this gap using a tool from recent and well established international trade literature: the gravity equation. We first develop a theoretical model to assess the micro-foundation of such an instrument in a water market context. The model distinguishes a variable and a fixed cost of trade, which allows us to disentangle the intensive and the extensive margin of water trading. Then we test the theoretical predictions using water transfer data within California at the level of water districts over a 17-year period. We classically approximate transaction costs with distances and institutional factors. Results validate the theoretical prediction and show the importance of distance and institutional factors in the decision to trade, with an emphasis on the extensive margin of water trade. Furthermore, we believe that this paper opens a new path in this particular research field and should allow better analysis of the performance of water markets.

We analyze the adaptation of water systems to climate change through infrastructure and conservation. We build a simple model in which the primary purpose of water-storage capacities is to manage inter-seasonal variation in water endowment and demand, and climate change is assumed to change total precipitation, its rain/snow distribution, evaporation of water stored in reservoirs, and the water demand. We show that the impact of climate change on the marginal benefit of water-storage capacities and input-efficiency in water use depends on the intensity of climate change and initial conditions about the climate and water demand, and climate change does not necessarily lead to increases or decreases in either conservation or storage. Some of our results are apparently counterintuitive and can generate policy and more general implications for adaptations to climate change in the water sector.

Recent negotiations between surface water and groundwater users in Idaho highlight a potential mechanism to resolve costly conflict that has arisen in many areas of the western U.S. where surface and groundwater resources are hydraulically connected. This article studies this type of agreement by developing a simple, dynamic model of cooperative bargaining between surface and groundwater users. The model reflects the potential gains to both types of water users from bargaining over a sustained reduction in groundwater pumping to increase surface water flows. In a non-cooperative setting, surface water users choose the groundwater pumping reduction to maximize their net production rents, but doing so is costly, which creates an incentive for surface water users to negotiate with groundwater users. With the theoretical model, we demonstrate that the Nash bargaining path of curtailments is lower than that in the non-cooperative outcome, but that it may be larger or smaller than the first-best outcome. The difference between the bargaining and first-best outcomes depends on the efficiency of groundwater irrigation and the relative bargaining power of surface water and groundwater users. In a numerical simulation, we show that when surface water users possess greater bargaining influence, the bargaining solution involves larger curtailments than is socially optimal and an improvement in irrigation efficiency drives the bargaining solution closer to the non-cooperative outcome. Conversely, when groundwater users possess greater bargaining influence, curtailments are lower than the socially optimal level and an improvement in efficiency drives the bargaining solution closer to the first-best.

During the apartheid era, all South Africans were formally classified as white, African, coloured, or Asian. Starting in 1970, the government directly provided free family planning services to residents of townships and white-owned farms. Relative to African residents of other regions of the country, the share of African women that gave birth in these townships and white-owned farms declined by nearly one-third during the 1970s. Deferral of childbearing into the 1980s partially explains this decline, but lifetime fertility fell by one child per woman. These changes were coincident with increased employment among African women and, decades later, higher income for their children in adulthood.

How, and why, does racial segregation affect voting behavior? We theorize that local racial context shapes individuals' expressed identities, which directly affects their political behavior. To test this theory we leverage natural geography as a conditionally exogenous instrument for sustained segregation in post-Apartheid South Africa, and study its consequences using aggregated voting and micro-level attitudinal data. Natural physical barriers such as hills, valleys, and rivers, enable states, or citizens of powerful economic in-groups, to partition urban and suburban spaces by race. In the South African context, such natural barriers were used for decades by the Apartheid regime explicitly for the purpose of separating race groups. The end of Apartheid in 1991 allowed for a rapid influx of black (and other non-white) South Africans into previously exclusively white urban and suburban areas, but re-integration was not uniform. We show that the presence of natural physical barriers sustained pre-existing segregation, differentially retarding re-integration in former racial enclaves. Using a two-stage least squares approach, we explore the political consequences of sustained segregation by considering the effect of changes in both the white share of the population and spatial segregation on voting behavior. We find that voters in white-only areas, and high segregation areas, to become less likely to vote for a non-white party, at rates that cannot be explained by simple racial voting or spatial sorting. We then explore geo-referenced survey data for roughly 50,000 individuals, and show micro-level evidence consistent with the aggregate findings and theory.

Does wealth persist over time despite historical shocks like colonisation? One strand of literature suggests no: Acemoglu et al. argue that colonisation brought bad institutions to most of sub-Saharan Africa that caused a ‘reversal of fortune’. Another strand of literature suggests the opposite: despite several centuries of colonialism in Latin America, Valencia and Caicedo argue, ‘persistence dominate’. This paper uses the case of South Africa to show that while populations persist, wealth does not. Densely populated regions before colonialism are still densely populated. But institutional differences imposed by the colonial authorities caused a subnational divergence in the fortunes of the indigenous population, reflected in unemployment outcomes today.

Can labor migration promote a measure of structural change in sending communities by allowing workers to accumulate capital outside of their country of origin? Using the historical experience of circular labor migration between Malawi and the gold mines in South Africa, we investigate how oscillating flows of men and in-flows of money affect rural labor markets over the long run. We use a difference-in-differences design and newly digitized Census and administrative data to measure what happens to labor market outcomes in the twenty years following two plausibly exogenous shocks to the option to migrate. In places with high exposure to migration shocks, workers shift out of agriculture and into more capital-intensive non-farm service activities. We show that capital accumulated abroad is a key channel for these structural changes.

The largest and most important flow of scientific talent in the world is the migration of international students to the doctoral programs in science and mathematics offered by universities in industrialized countries. This paper uses the opening up of China in 1978 to estimate the causal effect of this flow on the productivity of their professors in mathematics departments across the United States. Our identification strategy relies on both the suddenness of the opening of China and on a key feature of scientific production: intra-ethnic collaboration. The new Chinese students were more likely to be mentored by American professors with Chinese heritage. The increased access that the Chinese-American advisors had to a new pool of considerable talent led to a substantial increase in their productivity. Despite these sizable intra-ethnic knowledge spillovers, comparable non-Chinese advisors experienced a decline in the number of students they mentored and a concurrent decline in their research productivity. In fact, the productivity gains accruing to Chinese-American advisors were almost exactly offset by the losses suffered by the non-Chinese advisors. Finally, the evidence does not support the conjecture that the efficiency gains from the supply shock will be more evident in the next generation, as the Chinese students begin to contribute to mathematical knowledge. The rate of publication and the quality of the output of the Chinese students is comparable to that of the American students in their cohort.

This paper presents the first evidence on the efficacy of a major program designed to encourage the return migration of high-skilled individuals. The Malaysian Returning Expert Program (REP) targets high-skilled Malaysians abroad and provides them with incentives to return. We use the fact that at several thresholds the probability of acceptance to the program increases discontinuously, to identify the impact of acceptance to the REP on the probability of returning to Malaysia. Our fuzzy regression discontinuity design estimates suggest that program approval increases the return probability by 40 – 70 percent for applicants with a pre-existing job offer in Malaysia. For those who apply without a job offer in Malaysia there is no significant treatment effect. We conduct a fiscal cost-benefit analysis of the REP and find a modest net fiscal effect of the program, between minus $6,900 and plus $4,200 per applicant, suggesting that the program roughly pays for itself.

We study the prevalence and traits of global collaborative patents for U.S. public companies, where the inventor team is located both within and outside of the United States. Collaborative patents are frequently observed when a corporation is entering into a new foreign region for innovative work, especially in settings where intellectual property protection is weak. We also connect collaborative patents to the ethnic composition of the firm's U.S. inventors and cross-border mobility of inventors within the firm. The inventor team composition has important consequences for how the new knowledge is exploited within and outside of the firm.

Science, Technology, Engineering, and Mathematics (STEM) workers are fundamental inputs for innovation, the main driver of productivity growth. We identify the long-run effect of STEM employment growth on outcomes for native workers across 219 U.S. cities from 1990 to 2010. We use the 1980 distribution of foreign-born STEM workers and variation in the H-1B visa program to identify supply-driven STEM increases across cities. Increases in STEM workers are associated with significant wage gains for college-educated natives. Gains for non-college-educated natives are smaller but still significant. Our results imply that foreign STEM increased total factor productivity growth in US cities.

We present empirical evidence that restrictions to the set of feasible financial contracts affect buyer - supplier relationships and the organizational form of the firm. We exploit a regulation change that restricted the maturity of the trade credit contracts that a large retailer could sign with its small suppliers, defined by an arbitrary sales cutoff, to at most 30 days. Using a within-product differences-in-differences identification strategy, we find that the restriction to the set of feasible contracts reduces the likelihood that trade takes place by 11%. The large retailer responds by internalizing the procurement of some products previously sold by affected firms to its own subsidiaries but reduces the volume of purchases, consistent with the fact that vertical integration is costly. Thus, financial contracts like trade credit may help overcome contracting frictions and enable trade.

A randomized trial among dairy farmers in Kenya suggests that take up of loans to purchase rainwater harvesting tanks is highly sensitive to deposit and guarantor requirements. Only 2.4% of farmers took up loans to buy rainwater harvesting tanks under standard credit terms with high deposit and guarantor requirements. Giving farmers the opportunity to collateralize loans with the asset they purchase increased loan take up to 44%. In contrast, substitution of joint liability guarantor requirements for deposit requirements does not increase loan take up. While easier credit terms are associated with higher rates of ever being late on a payment, late balances were trivial at the end of the sample, and we find neither selection or treatment effects of 25% deposit or guarantor requirements relative to a a 4% deposit requirement. All loans were fully repaid (in one case out of the proceeds of a sale of a repossesed tank.) Many borrowers repay loans early. While we cannot rule out other hypotheses, the data are consistent with the hypothesis that farmers are loss averse and that asset-backed collateralization encourages investment by loss-averse agents. Households offered loans on less restrictive terms are more likely to own a tank, have healthier cows, and report spending less time fetching water and tending livestock. Girls in these households are more likely to be enrolled in school.

We use detailed contract level data on a portfolio of 300 coffee processors in 25 developing countries to test for strategic default (ex-post moral hazard) in this market. Due to moral hazard, default rates increase following unanticipated increases in world coffee prices just before (but not just after) the maturity date of the contract. Contractual parties take into account strategic default in their contract choices: stronger relationships self-select into fixed price contracts that provide insurance to the seller but expose the buyer to strategic default. Weaker relationships self-select into indexed contracts that are robust to strategic default but left the exporter exposed to significant price risk. A RDD and model calibration shows that strategic default leads to credit constraints. Additional loans are used to increase input purchases from farmers rather than substituting other sources of credit. Prices paid to farmers increase implying the existence of contractual externalities along the supply chain.

When contract enforcement is imperfect, concerns about ex-post reneging can lead to a break down in ex-ante trade. We study enforcement constraints in a setting with a high level of repeated interactions: irrigation sales among Indian farmers with neighboring landholdings. In this setting, smallholder farmers purchase irrigation from a well owner on a neighboring plot of land multiple times every year. Using a field experiment, we offered to subsidize the cost of irrigation between potential water buyer and seller pairs, with the subsidy payment to be delivered three months in the future. We randomized whether this payment would be delivered into the hands of the water buyer, or directly into the hands of the water seller. Under the Coasian benchmark, the amount of trade should not be affected by which party will receive our subsidy: if there are gains from trade, the parties should be able to execute the trade and ex ante agree on how to divide our payment. However, consistent with enforcement constraints, when the parties know the money will be delivered directly to the water seller, the amount of irrigation is 27% higher and sellers extend trade credit 36% more often. This generates a 15% estimated increase in net revenues (crop yield revenue minus irrigation cost); this magnitude is equivalent to a 20% increase in land size. These findings suggest that in our setting, contract enforceability is a first-order impediment to realizing the gains from trade

In recent years scholars in economics, psychology, and sociology have asserted that the “Easterlin Paradox” is not supported by their empirical research. The principal purpose of this paper is to test whether recently published data from two sources – the United States General Social Survey and the World Values Survey (WVS) – confirm these negative findings. Is it “Paradox Lost” or “Paradox Regained”? The Paradox states that at a point in time happiness varies directly with income both among and within nations, but over time happiness does not trend upward as income continues to grow. There is no disagreement on the cross section relationship, or that happiness and income fluctuations are positively related. The critical test of the Paradox is whether in the long run there is a statistically significant positive trend in happiness associated with long-term economic growth. United States experience continues to support the Paradox: for almost seven decades, from 1946 through 2014, the trend in happiness has been flat or perhaps even negative, while real GDP per capita has tripled. Support for this conclusion on the happiness trend is provided by studies that adjust the data for comparability and by similar findings in other time series data. The WVS data also support the Paradox: among countries worldwide there is not a statistically significant positive relationship between long-term growth rates of happiness and real GDP per capita. This nil relationship holds separately for developed, transition, and less developed countries, and remains unchanged after adjusting the data for comparability of the happiness question, and eliminating outliers and countries with non-nationally representative surveys. Why have the Paradox critics come to a different conclusion? The main reason is that they typically include in their studies some happiness time series that are quite short, have only two observations, or fail to span a complete GDP cycle. As a result, the observed growth rates of happiness and income in these series are not trend rates, but those found in a cyclical expansion or contraction. Mixing these short-term growth rates with trend rates shifts the happiness-income regression from a horizontal to positive slope.

I develop a new method to estimate intergenerational mobility (IM) in educational attainment on U.S. census data spanning 1940-2000. I measure IM directly for children still living with parents at ages 26-29, and indirectly for other children using an imputation procedure that I validate in multiple datasets spanning the full sample period. Educational IM increased significantly 1940-1970 and declined after 1980. Post-1940 IM gains were economically large, driven by high school rather than college enrollment, and were larger for blacks primarily due to all-race IM gains in the South. I discuss potential causes of these patterns.

As one of the most destructive socio-political upheavals in the history of contemporary China, the Cultural Revolution (1966-1976) incentivized people to snitch on each other to signal loyalty to the Party. This paper identifies the causal effect of exposure to Cultural Revolution on social trust, taking advantage of both cohort and regional variation. Specifically, the regional intensity variation is captured by the number of abnormal deaths on county level, and cohort variation is measured by the interrupted years of schooling during the Cultural Revolution. The major finding is that individuals from counties with higher Cultural Revolution intensity and exposed to more years of interrupted schooling during the revolutionary years significantly trust less. I also discuss mechanisms through which the Cultural Revolution affected social trust. Robustness checks are conducted considering migration issues, measurement error, omitted variable bias, heterogeneous effects and placebo test.

The large and persistent current account surplus of China vis-a-vis the United States and Europe is surprising to many economists, but it is not historically unprecedented. It was also the case that during the early modern period (1500-1800) Asia, and in particular, China, ran an enormous current account surplus vis-a-vis Western Europe. In this paper we use a combination of empirical evidence and structural modeling in a contribution to understand the role of American precious metals in stimulating Euro-Asian trade during the early modern era. We estimate the size of injections to Europe's stock of precious metals and use this information in a dynamic general equilibrium model to reproduce observed history as well as calculate a no-shock counterfactual of not having the injection of precious metals. To do this, we take into account transaction costs and endogenous money demand. Precious metals were particularly important for Asia because there is evidence of scarcity of means of payments in this region. Our conclusion is that the discovery of a windfall of American precious metals was a major driving impulse behind early modern Euro-Asian trade. Under the monetary injection European purchases of Asian goods are four times those of the unshocked baseline scenario. The simulations further suggest most of the observed increase in Euro-Asian trade is explained by the monetary injections.

The “staples thesis” hypothesizes that labor contracts in a given region are explained by the technology of production of its major export staples, where slavery is likely to emerge in certain “slave-conducive” crops, such as cotton, rice, and sugarcane. This paper evaluates the thesis using a unique natural experiment from nineteenth-century rural Egypt, the cotton boom that occurred because of the American Civil War in 1861-1865. Historical evidence suggests that the cotton boom marked the emergence of the short-lived institution of agricultural slavery in Egypt’s Nile Delta, where all slaves were imported from East Africa, before the abolition of slavery in 1877. Employing the newly digitized Egyptian individual-level population census samples from 1848 and 1868, I document that cotton-favorable districts witnessed greater increases in household’s slaveholdings and in the population share of slave-owning households between 1848 and 1868 than cotton-unfavorable districts. Those districts also witnessed greater increase in the population share of free local immigrants. I examine several mechanisms of these effects, namely, cross-district differences in the prices and quantities of slaves and in the relative scarcity of free local labor, and inter-crop differences in economies of scale, labor intensity, and profitability (results on mechanisms are not complete). I propose an explanation of the findings that qualifies the “staples thesis.”

Despite well-documented large and growing returns to attending college, youth from disadvantaged backgrounds continue to attend college at lower rates than their advantaged peers. This gap is not fully explained by differences in academic preparation, and college enrollment and completion appear to have become more dependent on family income in recent decades. This paper reports the results of a randomized field trial of the effects of two variants of V-SOURCE, a college-counseling intervention designed to address informational and social support barriers to college enrollment, as well as students’ tendency to forget or procrastinate deadlines. V-SOURCE served students from the spring of the junior year through the summer after high school graduation. The program was delivered “virtually” via the internet, phone, email, text message, and social networking platforms, making it relatively low-cost and scalable. Although administrative and self-reported data reveal that students took advantage of V-SOURCE services and found them helpful, in preliminary analyses, we do not find evidence of effects of the program on college enrollment outcomes.

Governments spend heavily on public higher education to make college affordable. In 2012, state appropriations to public colleges and universities exceeded $72 billion, allowing public institutions to keep college sticker tuition price lower for all students. Despite the magnitude of these expenditures, there exists little credible evidence on the causal impact of across-the-board tuition subsidies on college entry or college attainment. We exploit variation in tuition subsidies brought about by expansions in local college taxing district boundaries to isolate the impact of across-the-board tuition subsidies. Community college taxing districts are local jurisdictions that support public community colleges. In-district residents pay property taxes and face much lower tuition than individuals not living in college taxing districts. Preliminary event history analysis shows that Texas high school graduate cohorts exposed to taxing districts are more likely to attend community college immediately after high school compared to earlier cohorts of high school graduates from the same school district that are not exposed. The estimated effects are large, positive and statistically significant. Our effects are similar across students of varying economic status and measured ability. Moreover, we find little indication that students substitute away from public 4-year colleges. We are conducting analyses to distinguish between impacts of tuition subsidies and changes in college supply associated with taxing district expansions.

Understanding whether racial attitudes are malleable is critical for addressing the underlying causes of discrimination. We examine whether white males' stated attitudes and behavior toward African Americans change based on the number and type of black peers to whom they are exposed. To overcome selection bias, we exploit data from the U.S. Air Force Academy in which students are randomly assigned to peer groups. Results show significant evidence in favor of the contact hypothesis. Both the number and aptitude of black peers with whom they are exposed significantly affect white males. Specifically, white men randomly assigned to higher-aptitude black peers report being more accepting of blacks in general and are more likely to match with a black roommate the following year after reassignment to a new peer group with a different set of black peers. We also find that, ceteris paribus, exposure to more black peers significantly increases the probability of a bi-racial roommate match.

About 25 percent of college students currently participate in some type of online course. This figure is expected to climb rapidly. Prior research shows that gender and racial discrimination exists in various education contexts. However, little is known about discrimination in online settings. We explore this phenomenon in Massive Open Online Courses (MOOC) discussion forums, the primary setting for student-to-student and student-to-instructor online social interactions. We conduct a field experiment by posting comments using randomly assigned usernames in MOOC forums. Comments were randomly paired with a username evocative of race-gender profiles. We examine the number of views, responses, and points each comment receives. Our results indicate the presence of instructor bias. Instructors are more likely to respond to forum posts by white males. However, we uncover little evidence of bias among the broader online community. Our findings have important implications for low-cost, scalable instructor feedback systems in online settings.

Policymakers frequently propose to use capital tax reform to stimulate investment and increase labor earnings. This paper tests for such real impacts of the 2003 dividend tax cut—one of the largest reforms ever to a U.S. capital tax rate—using a quasi-experimental design and a large sample of U.S. corporate tax returns from years 1996-2008. I estimate that the tax cut caused zero change in corporate investment, with an upper bound elasticity with respect to one minus the top statutory tax rate of .08 and an upper bound effect size of .03 standard deviations. This null result is robust across specifications, samples, and investment measures. I similarly find no impact on employee compensation. The lack of detectable real effects contrasts with an immediate impact on financial payouts to shareholders. Economically, the findings challenge leading estimates of the cost-of-capital elasticity of investment, or undermine models in which dividend tax reforms affect the cost of capital. Either way, it may be difficult for policymakers to implement an alternative dividend tax cut that has substantially larger near-term effects.

This paper studies the effect of capital gains and corporate taxes on inventors across OECD countries in period 1977-2003. We differentiate inventors according to the number and quality of their patents. "Superstar" inventors are those with the most and most valuable patents. We use panel data on all inventors from the United States and European Patent Offices and combine this dataset with the data we collect on capital gains and corporate taxes internationally.

Theory recommends aligning the tax treatment of debt and equity. A few countries, notably Belgium, have introduced an allowance for corporate equity (ACE) to achieve tax neutrality. We study the effects of adopting an ACE on debt financing, passive investment, and active investment of multinational firms, using high-quality administrative data on virtually all German-based multinationals. We use two main identification strategies, based on: (1) synthetic control methods, and (2) variations across affiliates within the multinational group. Our results suggest that an ACE reduces the corporate debt ratio of multinational affiliates. Additionally, an ACE increases intra-group lending and other forms of passive investment but has no effects on production investment of multinational affiliates. The findings indicate that a unilateral implementation of an ACE system generates a tax planning opportunity using a structure combining the benefits from the ACE with interest deductions.

The tax bias in favour of debt finance under the corporate income tax means that corporate debt ratios exceed the socially optimal level. This creates a rationale for thin-capitalization rules limiting the amount of debt that qualifies for interest deductibility. This paper sets up a model of corporate finance and investment in a small open economy to quantify the deadweight loss from the asymmetric tax treatment of debt and equity and to identify the second-best optimal debt-asset ratio in the corporate sector. For plausible parameter values derived from data for the Norwegian economy, the deadweight loss from the tax distortions to corporate financing decisions amounts to 2-3 percent of total corporate tax revenue, and the socially optimal debt-asset ratio is 4-5 percentage points below the debt level currently observed. Driving the actual debt ratio down to this level would generate a total welfare gain of about 3 percent of corporate tax revenue. The welfare gain would arise partly from a fall in the social risks associated with corporate investment, and partly from the cut in the corporate tax rate made possible by a broader corporate tax base.

Energy policy often uses subsidies to information or to capital in order to induce investment in more efficient energy-using durables, but there is little credible evidence on the efficacy of these policies. This paper reports on a large-scale field experiment that aimed to increase energy-efficiency, by providing energy audits and skilled energy managers, in a sample of 433 chemical and textile manufacturing plants in India. There are three main results. First, projected returns to energy efficiency in audited plants are high but rapidly diminishing. Second, treatment plants invest somewhat, but insignificantly, more than control plants in equipment upgrades and maintenance. In direct measurements of technical efficiency, treatment plants see improvements in certain aspects of thermal efficiency but no significant change in aggregate efficiency. Third, treatment plants see a short-lived and marginally significant decrease in electricity consumption after energy audits but return to the same consumption path as control plants within one year. The experiment does not support that subsidized information provision can reduce energy consumption.

Energy efficiency programs are almost always evaluated by “engineering estimates” that may not align with empirically-realized energy savings and ignore non-monetary benefits and costs. We formalize a framework that uses engineering estimates and a refined set of revealed preferences to identify demand and market failure parameters for welfare analysis. We apply the framework to a 100,000-household randomized field experiment at a large energy efficiency program in Wisconsin. Energy use data suggest that the engineering estimates overstate realized energy savings over the first six to 18 months, and investment takeup data show substantial variation in non-monetary benefits and costs. Based only on monetary costs and benefits, the program had an internal rate of return of between -4.7 and 1.6 percent. Our welfare framework similarly suggests that the program reduced welfare.

Energy policy is increasingly focused on programs meant to counteract perceived underinvestment in energy efficiency. In evaluating these policies, economists have typically assumed that the actions of one household do not influence the choices of others. This misses a potentially important set of peer effects. If takeup of energy-efficiency programs is constrained by information problems, social networks may be particularly important in determining participation. In addition, correctly assessing the cost effectiveness of these programs requires credible estimates of spillover benefits. Taking advantage of rich household-level data on one million appliance replacements in a large middle-income country, I use a regression discontinuity design to compare homes whose neighbors were barely eligible for an appliance replacement subsidy to homes whose neighbors were barely ineligible. I find evidence of substantial peer effects. The timing and size of the effect suggest that information problems may affect energy-efficiency program participation.

We study the incidence and impacts of energy efficiency investments at public K-12 schools in California. Our empirical setting offers two advantages. First, schools provide a rare laboratory to analyze energy efficiency as there are thousands of them, all housing energy users pursuing very similar economic activities but exposed to different outdoor temperatures and with different existing infrastructures. Second, we make use of high frequency metering data---electricity consumption every fifteen minutes---to isolate times when measures are in use. These features allow us to precisely estimate the impacts of different types of energy efficiency measures, some of which are more capital intensive (appliance replacement) and some of which are more labor intensive (switching out lightbulbs). We then compare the estimates of the energy savings generated by measures to the costs of installing those measures to come up with measure-specific cost-benefit metrics. Finally, we consider whether the allocation of measures to schools appears efficient.

We study how investors perceive the skill set that different types of CEOs bring into their companies. We compare CEOs who started their careers during a recession with other CEOs. We show that the announcement return around the appointment of a recession CEO is very significant and positive, and this market reaction is driven by cases where a recession CEO replaces a non-recession CEO. Our results indicate that the market assigns a positive and economically meaningful value to a recession CEO, suggesting that there is a limited supply of these types of CEOs in the executive labor market.

This study demonstrates how gender diversity in corporate boards could improve firm value. Prior studies examine the valuation impact of gender-diverse boards and document mixed empirical evidence. To solve this conundrum, we must first understand how gender diversity could affect firm value. However, no prior studies examine nor suggest a mechanism that describes how female directors can be beneficial to corporate boards. Based on earlier findings that board heterogeneity of expertise improves firm value, we hypothesize and find evidence consistent with the argument that female directors contribute to boards by offering specific functional expertise, often missing from corporate boards.

We study the participation of women in golf, a predominately male social activity, on their likelihood of serving on a board of directors. Exploiting a novel dataset of all golf games in Singapore, we find that woman golfers enjoy a 54% higher likelihood of serving on a board relative to male golfers. A woman’s probability of serving on the board in a large firm or in a predominately male industry increases by 117% to 125% when she plays golf. In sum, our results suggest that "playing the boys game" facilitates women’s directorships in publicly traded firms.

When it comes to the representation of women on boards, we argue that the finance industry may be special. Because it is relatively human capital intensive, educational differences between men and women may influence diversity in the industry. Since math is particularly important for finance, we examine this hypothesis using high school math scores from PISA. In countries with greater gender gaps in math scores and lower average math scores, we find that banks have lower boardroom diversity. The influence of math scores appears to transcend standard cultural explanations. Although special, the finance industry is not unique. Math scores also appear important for understanding boardroom diversity in other sectors. Our evidence suggests that differences in educational outcomes for boys and girls may have long-lasting implications for their career development.

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This paper provides a simple model of the diabolic loop between sovereign and bank risk, and explores whether and how the loop can be defused by means of sovereign debt design in a currency union. First, we find that what matters is the ratio of banks' equity to their domestic sovereign exposures. Second, requiring banks to hold only a senior tranche of domestic sovereign debt is more effective than requiring them to diversify their sovereign portfolios across countries. But a diversified sovereign debt portfolio is most effective jointly with tranching: requiring banks to hold only the senior tranche of such a portfolio -- i.e. ESBies -- reduces their equity requirement per dollar of sovereign holdings, relative to a regime where they are required to hold senior domestic sovereign debt only. ESBies also generate more safe assets than domestic debt tranching alone. Finally, insofar as the diabolic loop is defused and the associated endogenous risk is reduced, in equilibrium the junior bond is itself risk-free.

This paper explores the consequences of extremely low equilibrium real interest rates in a world with integrated but heterogenous capital markets, and nominal rigidities. In this context, we establish five main results: (i) Economies experiencing liquidity traps pull others into a similar situation by running current account surpluses; (ii) Reserve currencies have a tendency to bear a disproportionate share of the global liquidity trap—a phenomenon we dub the “reserve currency paradox;” (iii) Beggar- thy-neighbor exchange rate devaluations provide powerful stimulus to the domestic economy at the expense of other economies; (iv) While more price and wage flexibility exacerbates the risk of a deflationary global liquidity trap, it is the more rigid economies that bear the brunt of the recession; (v) (Safe) Public debt issuances and increases in government spending anywhere are expansionary everywhere. We use these results to shed light on the evolution of global imbalances, interest rates, and exchange rates since the beginning of the global financial crisis.

This paper studies the long run effects of financial crises using new bank and town level data from around the Great Depression. We find evidence that banking markets became much more concentrated in areas that experienced a greater initial collapse in the local banking system. These areas also suffered slower population growth and worse economic outcomes over the long run relative to towns that were less affected by the Great Depression. There is also evidence that financial regulation after the Great Depression, and in particular limits on bank branching, may have helped to render the effects of the initial collapse persistent. All of this suggests a reason why post-crisis financial regulation, while potentially reducing financial instability, can also have longer run real consequences.

How do banking crises end? Suppression of bank-specific information during the crisis and secrecy about the identities of emergency borrowers are essential ingredients. These policies focus attention on the banking system not individual banks. During the National Banking Era, 1863-1914, banks responded to panics by suspending convertibility of checks into cash. During suspension periods, the clearing house transformed itself into a single institution by issuing liabilities of the joint membership. As a single institution it would not allow members to publish their individual balance sheet information in newspapers, which was required in normal times. Only the aggregate clearing house information was published. The clearing house conducted some special examinations of member banks and bailed out some banks. Sometime later convertibility was resumed and bank-specific information was published again.

The Federal Reserve System was established in 1914 to correct flaws in the U.S. banking system that reformers blamed for recurrent banking crises. Those flaws included “seasonal stringency” in financial markets; the concentration of the nation’s bank reserves in New York City and other financial centers; and reliance on interbank relationships to move funds geographically. In the 19th Century, an extensive interbank network evolved organically to move funds around the country to accommodate shifting demands for loans and cash, but the system failed to overcome fully the problems of seasonal stringency and “inelastic currency” that plagued the National Banking system and led to crises. In this paper, we document strong and somewhat regionally diverse seasonal patterns in interbank flows. The interbank market accommodated regional differences in the demands for money and credit by shifting funds from surplus to deficit regions, but broke down when shocks caused spikes in liquidity demand throughout the nation, as in 1893 and 1907. The Federal Reserve was structured in part to minimize the need for interregional flows of funds to smooth regional differences in money and credit demands. We find that interbank linkages diminished in importance after the Fed was established, but they did not disappear entirely. Although the Fed’s decentralized structure was successful in alleviating local seasonal stringencies, the structure likely made it more difficult for the System to respond effectively to prevent the national banking collapse of the 1930s.

The regulatory framework for commercial banks evolved over the 20th century. In the run up to the Great Depression capital requirements for commercial banks were fixed in dollar terms and bank owners and managers had substantial liability for the fate of their firms. In the run up to the Great Recession capital requirements were proportional to risk-weighted assets and bank owners and managers may have felt that some firm were too big to fail. We compare these two regimes by examining historical and modern micro data and comparing the behavior of large and small institutions. We document how the largest banks’ capital choices in these two regimes differed during the two largest financial booms and busts in American history. Our findings illuminate the impact of changes in the regulatory framework on the behavior of the largest financial institutions in the U.S. Our empirical results suggest that the pre-Great Depression regulatory regime would have induced the largest U.S. banks to hold greater capital buffers prior to the financial crisis of 2008.

Public questioning about the role of finance has been fueled by the perception that financial sector pay is an important factor behind high economic inequalities. This paper is the first to provide a comprehensive analysis of the level of earnings in finance and the implications for labor income inequality for 18 European countries. Financial sector workers are shown to make up 20% among the top 1% earners, although the overall employment share of finance is only 4%. Nonetheless, the relatively small size of the sector limits the contribution that financial sector pay has on income inequality to a small, but noticeable amount. Simulations indicate that most of this contribution is explained by financial institutions paying salaries and bonuses which are above what employees with similar profiles receive in other sectors. Estimations that allow for heterogeneity across workers reveal that this wage premium is more than twice as high for financial sector workers at the top of the earnings distribution than at the bottom.

Top earners have become the subject of intense public and scholarly debate, but much remains to be learned about their socio-demographic characteristics. This paper is the first study to provide a comprehensive look at the profiles of the 1% highest paid employees across 18 European countries. Estimations use the largest harmonized data set available, an employer-based survey with a sample for the top 1% of 100,000. Workers in the top 1% tend to: i) be in their 40s or 50s, ii) be a man, iii) have tertiary education, iv) work in finance, manufacturing or wholesale and retail, and v) be employed as chief executives or other senior managers. These patterns are broadly similar across countries, but the analysis also uncovers several cross-country differences. For example, top earners are younger in Eastern Europe, they are less often new recruits in Southern Europe, and they include more women in countries where overall female employment is higher.

We derive optimal linear and non-linear taxes on labor and capital income in a two-period life-cycle extension of the Mirrlees (1971) model where individuals are heterogeneous in their ability to earn labor and to earn capital income. Preferences are weakly separable and identical across individuals, so that capital-income taxes are zero if capital returns are identical for all individuals. We demonstrate that capital income should optimally be taxed if capital returns correlate positively with ability. Conditional on labor income, the capital-income tax base then provides information about an individual's underlying earning ability. The capital-income tax therefore provides distributional benefits over and above the redistributive benefits of the labor-income tax. The optimal capital-income tax strikes a balance between taxing rents in capital returns and distorting savings.

Increasing inequality in recent decades has triggered a heated debate on whether wealth transfer taxation is an appropriate countermeasure to the perpetuation of inequality. A major factor in making progress in this discussion is understanding how taxpayers respond to incentives generated by wealth transfer taxes. Using administrative tax records from Germany, this paper investigates behavioral responses to a very large transfer tax kink in the inheritance and inter vivos gift tax schedule. We find sharp bunching of taxable inheritances and even larger bunching of taxable inter vivos gifts. However, because the kink is large, the underlying taxable inheritance and gift elasticities are moderate and amount up to 0.11. In line with the notion of accidental bequest models, further evidence suggests that the amount of wealth bequeathed is uncertain. This may explain the small size of the inheritance elasticities. Based on the results, the present paper lends strong support to the hypothesis that wealth transfers are relatively inelastic along the intensive margin in the short term.

We study the effects on inequality of a "Piketty transition" to zero growth. In a model with a worker-capitalist dichotomy, we show first that the relationship between inequality (measured as a ratio of incomes for the two types) and growth depends critically upon the elasticity of substitution in production. For nearly all elasticity values, long run inequality is lower under zero growth. Although under zero growth capitalists save more, factor prices respond to the relative of abundance of capital, decreasing the return to capital relative to wages, which mitigates inequality. Extending our model to include idiosyncratic wage risk we show that growth has quantitatively negligible effects on inequality, and again the effect is negative rather than positive. Finally, following Piketty's thought experiment, we study how the transition might occur without declining returns; here, we find inequality decreases substantially if financial innovation acts to reduce idiosyncratic return risk, and does not change much at all if it acts to increase capital's share of income.

A large body of empirical work documents that prices of traded goods change by a smaller proportion than real exchange rates between the trading countries (incomplete pass-through). I present a Ricardian model of trade and international price-setting with heterogeneous firms, Bertrand competition and incomplete information. The model implies that: 1) firm-level pass-through is incomplete and a U-shaped function of firm market share; and 2) producers operating under incomplete information, like for example new entrants in a market, exhibit different pass-through rates than producers operating under complete information. Estimates from a panel data set of cars prices support the predictions of the model.

We study the effects of trade integration for the conduct of monetary policy in a two-country model with heterogeneous firms, endogenous producer entry, and labor market frictions. The model reproduces important empirical regularities related to international trade, namely synchronization of business cycles across trading partners and reallocation of market shares across producers. When trade linkages are weak, the optimal cooperative policy is inward-looking and requires significant departures from price stability both in the long run and over the business cycle. As trade integration reallocates market share toward more productive firms, the need of positive inflation to correct long-run distortions is reduced. Moreover, increased business cycle synchronization implies that country-specific shocks have more global consequences. As a result, the optimal cooperative policy remains inward looking. However, sub-optimal domestic stabilization implies inefficient fluctuations in cross-country demands that result in larger welfare costs when trade linkages are strong.

This paper develops a framework to study how different sources of fluctuations and the micro-structure of trade networks shape the volatility of exports at the firm-level and in the aggregate. We consider four orthogonal shocks affecting exporter-importer trade networks -- a macroeconomic shock and three individual shocks hitting respectively the exporter, its foreign partner, and the match they form. We use our framework and new data on networks connecting French exporters to European buyers over the 1995-2007 period to structurally estimate these shocks. Individual shocks are found to be a major source of fluctuations, in disaggregated as in aggregate data. Customer-related shocks matters for the volatility in the small. Firms' exposure to such shocks varies depending on the structure of their portfolio of customers: More diversified firms are better hedged against customer-related shocks. This diversification explains a sizable fraction of the dispersion of volatility across firms. In the aggregate, the relative prevalence of different types of individual shocks also varies across countries. We show that it depends on the shape of the sales distribution across sellers, buyers and seller-buyer pairs. Differences in the structure of trade networks partly explains the differences in the origins and the magnitude of the volatility of French exports across destinations.

The current account deficits of Spain, Portugal and Greece are the result of large deficits in goods trade and modest surpluses in service trade. Germany, instead, displays a large surplus in goods trade, but a deficit in service trade. Starting from this motivating evidence, I propose in this paper a simple model that rationalizes how the asymmetric timing of trade liberalizations can affect current account dynamics. I solve analytically a log-linear version of the model and derive an expression where the current account depends on present and future relative changes in the exogenous trade costs. Second, I show that trade costs dynamics and productivity dynamics have been highly asymmetric in the manufacturing and services sectors in Germany in the period 2000-2007 and I propose a quantitative analysis based on a standard 2-country international real business cycle model augmented with trade costs. When fed with the actual asymmetric trends found in the German data, the model can generate a trade surplus of about 6% of GDP. The model delivers large trade surpluses also when considering only asymmetric trade liberalizations, but fails to generate surpluses consistent with the data when considering only asymmetric productivity dynamics. Finally, I provide empirical evidence broadly supporting the key predictions of the simple model using both data from 24 OECD countries plus the BRICS and data from a sample of developing countries specialized in the export of agricultural goods.

Technology and knowledge advancement is considered as a major engine for economic growth. However, little is known about the actual knowledge production process. This paper opens up this black box by investigating interactions between scientific workers in collaborative researches. Interactions among collaborators can stimulate creative thinking and provide learning opportunities for those who lack certain skills. Therefore, it is intuitive to expect that the productivity of a researcher’s collaborators has a positive effect on her own productivity, which is the main hypothesis to be tested in this study. We address the main endogeneity issue from people’s selection in collaborators by estimating pairwise network formations in the first step. Identification comes from exclusive variables that affect a researcher’s choice of collaborators but not her productivity directly. These instruments include common research interest and the overlap of two scientists’ collaborative networks. This paper confirms the existence of productivity spillover among scientific workers, and that one unit increase in coauthors’ productivity will increase his own publications by 0.05 units.

The paper studies empirically the structure and dynamics of the networks of exchanges in rural communities of the Gambia, West Africa. We build the analysis on two rounds of data collection, in 2009 and 2014, in 56 Gambian villages. In each of these villages we interviewed all households (with few missing observations), collecting data for 8 different economic (e.g., for land, labor and credit) and social (family and friendship) networks. Our data combines two special features: By collecting data on all households, we avoid the biases of network analyses that are based on samples of households (e.g., Chandrasekhar and Lewis, 2011). In addition, half of our villages were treated with a randomly placed Community-Driven Development (CDD) program in 2009/10, after the baseline data collection, providing an exogenous source of variation in village-level development opportunities and in the structure of social interactions.<br /><br /> <br /><br /> We contribute to the literature in two directions. First, our data on networks at two points in time allows us a rare glimpse at how networks evolve over time. Second, we exploit the random placement of the CDD program as an exogenous shock to networks. The program is designed to affect the structure of interactions within the villages, with a particular focus on inclusiveness and avoiding elite capture. To analyze the causal mechanisms behind the dynamics of economic exchanges in the Gambian villages, we employ a difference-in-difference estimator, to study network-related outcomes at the village-, household- and at the dyadic-level. A particular focus is on the question whether evidence for the intended change in village-level institutions (e.g., Casey et al. 2012) can be found in networks; in particular, we investigate how the networks of village elites (such as traditional chiefs or religious leaders) and the networks of households that were isolated at baseline change in response to the program.

Empirical research on social and economic networks has been constrained by the limited availability of data regarding such networks. This paper develops a method that does not rely on network data to estimate network effects. The proposed method also estimates the probability that pairs of individuals form connections, which may depend on exogenous factors such as common gender. The method may incorporate imperfect network data, such as with self-reported data, with the purpose of refining the estimates and testing whether the reported connections positively affect the probability that a link is formed. To achieve those goals, I derive a maximum likelihood estimator for network effects that is not conditioned on network observation. Networks are treated as a source of unobserved heterogeneity and eliminated based on data collected from observing many groups. This is accomplished with recourse to a spatial econometric model with unobserved and stochastic networks. I then apply the model to estimate network effects in the context of a program evaluation. I demonstrate theoretically and empirically that including network effects has important implications for policy assessments.

We investigate whether small societies that are largely self-reliant for risk sharing and investment, and are suddenly exposed to an external source of credit, experience changes in internal social network structure. We examine not only whether such exposure changes the internal borrowing and lending structure of a society, but also whether this spills over and affects other networks such as exchange of favors and advice. We first provide a theoretical framework for analyzing how informal borrowing and lending relationships interact with exchange of favors and advice. We show that these are strategic complements and that eliminating some borrowing and lending relationships decreases the number of favor and advice relationships, and also results in a network that has a lower local clustering measure (`support'). We then investigate this empirically, using our data from \citep*{banerjeecdj2013} augmented with a resurvey after exposure to microfinance. Our data include detailed social network data on 75 villages, predating the entry of a microfinance institution; as well detailed social network data in the same villages two years {\sl after} the entry of the microfinance organization. Most importantly, the MFI entered just over half of the villages and not the others, allowing us to conduct a difference-in-differences analysis. We find that villages that were exposed to microfinance not only see a significant loss in the average number of borrowing and lending relationships compared to villages that were not exposed, but also see a significant loss in the number of favor exchange and advice relationships. In addition, exposure to formal borrowing channels changes the structure of the social network resulting in people having significantly fewer `friends in common', beyond what would come directly from the decreased density.

Social networks are important in influencing one's health behaviors. Using experimental data, this paper analyzes the effect of social networks on vaccination behaviors among women in rural Nigeria. Social networks within village, neighborhoods, and among friends all influence one's vaccination decision to a great extent. We find that the effect of a friend getting vaccinated increases the likelihood that one receives a vaccination by 17.8 percentage points. We additionally find that the effect of a friend receiving a vaccine on one's vaccination decision varies by the belief about vaccine safety, by the distance to a health clinic, and by the amount of cash incentives. We find suggestive evidence that social networks matter for one's vaccination decision because peers visit the clinic for vaccination together.

Productivity measures are critical for understanding economic growth and business survival in the U.S. economy. The Bureau of Labor Statistics (BLS) produces the official productivity statistics for the U.S. using aggregate industry level data. However, those statistics cannot provide insight on the within-industry variation in productivity, limiting our understanding of the rich productivity dynamics in the U.S. economy. To address this gap, the BLS and the Census Bureau are collaborating to create measures of within-industry productivity dispersion with the goal of developing both public-use and restricted-use statistics. The public-use measures of productivity dispersion will include within-industry measures of the distribution of productivity for industries in the Manufacturing sector and will be published jointly by the BLS and the Census Bureau. Restricted-use establishment-level data with input, output, and productivity measures will be made available in secure Federal Statistical Research Data Centers. Why do we need measures of within-industry productivity dispersion? Results from microdata-based productivity research have changed the way we think about aggregate productivity growth, labor market dynamics, international trade and industrial organization. There are large and persistent productivity differences across businesses even within narrowly defined industries. These differences are correlated with important economic outcomes such as the growth and survival of establishments. In this paper, we construct establishment-level labor productivity and multifactor productivity measures using microdata from the Annual Survey of Manufactures and the Census of Manufactures. Along the way, we examine a variety of data and measurement issues including issues related to imputation and weighting of the microdata. We also compare industry-level micro-aggregated measures to BLS industry-level measures of inputs, output and productivity. Finally, we explore the variation in our industry-level productivity dispersion measures across industries and time.

The notion that firms provide wage insurance to risk-averse workers goes back to Bailey (1975). Recently, Guiso et al. (2005) use Italian data and find evidence of full wage insurance in the case of temporary shocks to firm output, although only partial insurance for permanent shocks. Using 1992-2011 Longitudinal Employer Household Dynamics (LEHD) data matched to Census annual business surveys, we examine whether shocks to firm performance (year to year changes in sales and value-added) are transmitted to worker earnings. We examine both short-term (year to year) and long-term (five year) changes, using Economic Census data to examine the representativeness of our annual sample. We also examine whether the extent of wage insurance varies across industries and workers at different percentiles in the earnings distribution.

A large empirical literature has documented the existence of establishment wage differentials. But worker and establishment differentials are typically identified via turnover, which means that it is not possible to know very much about what these effects represent or how persistent they are over time. We use a largely untapped dataset, the BLS’s Occupational Employment Statistics, to examine the nature of establishment wage differentials. The OES is an establishment survey that collects payroll information (i.e., the employment and wages for each occupation) for a relatively large number (about 400,000 per year) of establishments across the United States. This information allows us to identify and estimate occupation-by-establishment wage differentials, expressed as the percent difference between the prevailing wage in the market for an occupation and the wage paid by the establishment. We then aggregate these differentials to calculate establishment-specific wage differentials. With these establishment-specific differentials in hand, we can examine their properties and determine the extent to which they persist over time. We first examine the distribution of wage differentials across establishments and how the magnitudes of these effects vary by establishments’ observable characteristics, such as industry, size, skill intensity. Next, we examine how these differentials are distributed across occupations within each establishment. If they are unequally distributed, then it would be hard to argue that they are true establishment wage differentials. Existing research (Lane, Salmon, and Spletzer 2007) has shown that there is a positive correlation between the wages of certain high-wage and low-wage pairs of occupations. For example, establishments that pay high wages to accountants also pay high wages to janitors. Our methodology allows us to use standard inequality measures to examine the within establishment distribution of these differentials, and relate them to observable characteristics. Finally, we examine the persistence of establishment wage differentials for a sample of large certainty units that are in the OES sample in multiple years.

Recent work highlights the importance of the establishment where someone works in the pay of workers and in the growth in wage inequality among US workers (Barth, Bryson, Davis, and Freeman 2014). To what extent are differences in earnings linked to the firm to which the establishment belongs and its characteristics, and to the characteristics of the establishment, in addition to the characteristics of the individual that enters the standard earnings equation? To answer this question we combine establishment level data with data on firms (using firm identifiers on the establishment files) and data on employees (using establishment identifiers linked to the Longitudinal Employer Household Dynamics (LEHD)) to estimate earnings equations that include establishment and firm characteristics. We measure establishment-level characteristics by: the value of capital structures from buildings to equipment of different types from the quinquennial Economic Census from 1992 to 2007; and the average of years of schooling, age, gender, race at the establishment level obtained from the characteristics of individual workers in the establishment in the decennial Census long forms for 2000 and 1990, and CPS for 1986-1998. We measure firm-level characteristics by R&D investments from the Business R&D and Innovation Survey (BRDIS) and different forms of capital investments from the Annual Capital Expenditure Survey (ACES). We link these firm-level characteristics to the LEHD, thus adding measures of the knowledge and physical capital of the firm to workers wage regressions. Decomposing the variance of ln earnings of individuals, we find that both firm and establishment substantially affect the variation of earnings of workers, along with their individual characteristics. At the establishment level, the education of co-workers affects individual pay, conditional on own level of education; plant capital equipment is associated with higher wages whereas building structures have little effect. The firm's level of R&D intensity is associated with higher wages for all workers. These results hold both when workers move to establishments or firms with larger amounts of the specified attributes and when they remain at the same establishment and the establishment or firm increases the attributes.

Student and team performance in in sixteen sections of an introductory microeconomic theory course taught using team-based learning are analyzed to determine what measurable characteristics of teams influence outcomes. Team success on in-class quizzes and activities and team cohesiveness are modeled as a function of diversity of class level, gender, and geographic origin, previous academic performance, and team size and class size. Individual performance is estimated as a function of individual characteristics and team characteristics, including team performance and team cohesiveness. Results suggest that team performance is not significantly influenced by team size, class size, or the mix of class levels. The GPA of the top individual on the team is positively correlated with overall team success. Interestingly, team cohesiveness is not significantly impacted by team success. Further individual success is positively and significant influenced by team cohesiveness but not by overall team performance.

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This study presents the results of two pedagogical interventions – an assignment using economic data and an assignment requiring a research project and presentation – aimed at dispelling economic misconceptions that linger through a typical principles of economics course. Participants were surveyed regarding several economic facts. Control and treatment pedagogical approaches were carried out over four academic semesters. The results suggest the combined research plus data treatment was most effective student learning about the labor force earning the minimum wage and the composition of the federal budget. The research treatment group participants were most likely to provide an answer of “I don’t know” when asked about particular economic facts.

This paper endogenizes policymaking procedures in a multilateral bargaining framework. A procedure specifies players' proposal power in bargaining over one-dimensional policies. In procedural bargaining players internalize the procedures' effects on subsequent policy bargaining. In policy bargaining players' utilities are strictly concave and order-restricted. The paper provides characterization, existence, and uniqueness results for this two-tier bargaining model. Although the procedural choice set is multidimensional, sequentially rational procedures feature "limited power sharing" and admit a total order. In equilibrium endogenous policy and procedure are strategic complements.

A dynamic game of experimentation is examined where players search for an unknown threshold. Players contribute to the rate of decline in a state variable, and the game ends with a costly breakdown once the state falls below the threshold. In the unique symmetric pure-strategy stationary Markov equilibrium, the state decreases gradually over time and settles at a cutoff level asymptotically, conditional on no breakdown. The cutoff depends on the patience, the cost of the breakdown, and the prior distribution of the threshold, but not on the number of players. In a discrete-time version of the game, the equilibrium time path of the state converges to that of the continuous-time model when period length tends to zero.

Strategy-proof mechanisms eliminate the possibility for gain from strategic misrepresentation of preferences. If market participants respond optimally, these mechanisms permit the observation of true preferences and avoid the implicit punishment of market participants who do not try to "game the system." Using new data from a flagship application of the matching literature - the medical residency match - I study if these potential benefits are fully realized. I present evidence that some students pursue futile attempts at strategic misrepresentation, and examine the causes and correlates of this behavior. These results inform the assessment of the costs and benefits of strategy-proof mechanisms, and demonstrate broad challenges in mechanism design.

This paper studies bilateral trading in divisible double auctions. In the existing literature, divisible double auctions have been applied predominantly to markets with at least three bidders, for the reason that the usual linear equilibrium implies a market breakdown if only two bidders are present. These models thus cannot describe important decentralized markets where trades are conducted bilaterally (i.e. with exactly two agents). Examples include the bilateral trading of commodities, financial securities, and derivatives. In this paper we fill this gap. In our model, two bidders trade a divisible asset in a double auction. The bidders (1) submit demand schedules, (2) have interdependent and linearly decreasing or constant marginal values, and (3) can be asymmetric in their preferences. We characterize a family of nonlinear equilibria, implicitly given by a solution to an algebraic equation. These equilibria are also ex post optimal, that is, bidders do not wish to change their strategies even after they observe the equilibrium outcome ex post. If marginal values are constant, we solve the family of ex post equilibria in closed form. We show that the equilibrium quantity of trading is strictly less than that in the ex post efficient allocation. Our theory of bilateral trading differs from the bargaining literature and can serve as a tractable building block to model dynamic trading in decentralized markets of divisible assets.

This paper studies the design of reverse auctions in the US incentive auctions where TV broadcasters in the UHF band offer to relinquish the usage right or to relocate to another band to increase the spectrum for mobile communication uses. The state of the art is the deferred-acceptance auctions by Milgrom and Segal (2014) that determine allocations based on scores and are strategy-proof when sellers are single-minded. But when sellers have multiple relinquishment options and are restricted to be single-minded, there would be possibilities of strategic considerations about which option the seller should bid. Nevertheless just allowing multiple bids is not possible since a seller switching one option to another may violate interference constraints. To resolve this issue, this paper proposes generalized deferred acceptance auctions with the supplementary phase where sellers make multiple offers, the buyer does not need to recalculate interference constraints, and are strategy-proof. This auction can be regarded as a generalization of `ladder auctions' of Milgrom, Ausubel, Levin, and Segal (2014) for multiple offers. These results show generalities and robustness of incentive auctions design described in FCC (2015)and Milgrom and Segal (2014).

We examine the long-term effects of improved agricultural productivity on warfare. Our analysis relies on a newly constructed geo-referenced dataset on the location of conflicts in Europe, Middle East and North Africa between 1400 and 1900. Exploiting the improvement in agricultural productivity arising from the introduction of potatoes from the Americas in the late 17th century, we compare the prevalence of conflicts in regions suitable for potato cultivation with the prevalence in unsuitable regions, before and after potatoes were introduced. Our results show that the increase in agricultural productivity arising from the introduction of potatoes significantly reduced conflict. We find that this occurred through a reduction in the onset of conflicts rather than through a shortening of the duration of conflicts. We also find that the increase in agricultural productivity resulted in the formation of larger states with control over larger amounts of land.

Scholars of civil war and insurgency have long posited that insurgent organizations and their state enemies incur costs for the collateral damage they cause. We provide the first direct quantitative evidence that wartime informing is affected by civilian casualties. Using newly declassified data on tip flow to Coalition forces in Iraq we find that information flow goes down after government forces inadvertently kill civilians and it goes up when insurgents do so. These results have strong policy implications; confirm a relationship long posited in the theoretical literature on insurgency; and are consistent with a broad range of circumstantial evidence on the topic.

Changes in climate have been shown to substantially shape intergroup violence, but the mechanism remains poorly understood. We test if economic factors are the central pathway by examining killings by drug-trafficking organizations (DTOs), “normal” homicides, and suicides in Mexico. High temperatures have a large and similar impact on all three types of violence, suggesting some commonality in mechanisms. Many patterns in the data, including the limited influence of a cash transfer program in dampening the sensitivity to high temperature and a comparison with non-violent DTO crime, indicate that government monetary incentives only partially explain the observed relationship between temperature and DTO violence. We argue that previously ignored psychological and physiological factors that are affected by temperature, modeled here as a “taste for violence,” likely play an important role. Our results have important implications for the understanding of violence, as well as for the impacts of climate change.

We study whether war service by one generation affects service by the next generation in later wars, in the context of the major U.S. theaters of the 20th century. To identify a causal effect, we exploit the fact that general suitability for service implies that the closer to age 21 an individual’s father happened to be at a time of war is a key determinant of the father’s likelihood of participation. We find that a father’s war service has a positive and significant effect on his son’s likelihood of service in the next generation’s war. Across all wars, we estimate an intergenerational transmission parameter of approximately 0.1. Quantitatively, our estimates imply that each individual war had a substantial impact on service in those that followed. This effect cannot be explained by broader occupational choice or labor market opportunity channels: father’s war service increases sons’ educational achievement and actually reduces the likelihood of military service outside of wartime. Instead, we find evidence consistent with cultural transmission from fathers to sons. Taken together, our results indicate that a history of wars helps countries overcome the collective action problem of getting citizens to volunteer for war service.

Past climate changes in the Earth’s history have been associated with a shut- or slowdown of the thermohaline (or meridional) overturning circulation as vast amount of freshwater were introduced into the Atlantic Ocean. This study will use data from hosing experiments with climate models (Coupled Atmosphere  Ocean General Circulation Models) on future climate with and without a shutdown of the thermohaline circulation. Contrary to the popular image, these experiments show that expected cooling in Western Europe due to a shutdown of the thermohaline circulation is similar in magnitude to the expected warming due to increasing greenhouse gas concentrations. As ocean currents redistribute rather than create heat, a shutdown of the thermohaline circulation would also lead to an accelerated warming in Latin America and Africa. The FUND model will then be used to evaluate the change in human welfare associated with a shutdown of the thermohaline circulation.

The Earth system may react in a nonlinear threshold response to climate forcings. One such example is the potential disintegration of the West Antarctic ice sheet (WAIS) in response to ocean and atmospheric warming, leading to substantial sea-level rise. WAIS disintegration has been interpreted as an example of dangerous anthropogenic interference with the climate system and been discussed as one motivation for stringent mitigation of greenhouse gas emissions. Incorporating threshold responses into integrated assessment models (IAMs) used for policy analysis poses nontrivial challenges due to the current incomplete scientific understanding, methodological limitations, and pervasive deep uncertainties. Here we analyze the effects of representing (in a very approximate way) a potential WAIS disintegration in a stochastic programming IAM with endogenous uncertainty. We identify methodological and conceptual challenges and demonstrate avenues to address some of them through model emulation as well as the representation of expert knowledge, and learning. The results illustrate the relationships between scientific uncertainties, policy objectives, and metrics such as the social cost of carbon. We conclude with a discussion of key open challenges and research needs.

One of the most widely discussed effects of climate change is on land ecosystems (natural and managed), but there is surprisingly little clear information available about  the nature of these impacts, particularly including the physiological effects of increasing CO2 concentrations on plants. Starting with two alternative emission scenarios: a path of modest and a path of high emissions, this study uses climate change forecasts and dynamic quantitative ecosystem models to examine the resulting impacts on net primary production (NPP, approximately equivalent to plant growth.) What do these process-based ecosystem models predict will happen to NPP, standing biomass (assets), and the extent of different biomes (forests, grasslands, deserts) across the earth?  Are these changes likely to lead to large market or non-market damages?

Acidification from increasing uptake of CO2 has emerged as a potentially serious threat to ocean health. Here we assess the potential magnitude of the economic effects of an ocean acidification catastrophe by focusing on key marine ecosystem services most likely to be affected: marine capture fisheries, marine aquaculture, and coral reefs. It is scientifically plausible that by year 2200 OA could be associated with 1) Complete collapse of economically viable marine capture fisheries, 2) Minimal economic effect on aquaculture, due to high potential for adaptation, 3)Complete destruction of coral reefs, and 4) Significant loss of biodiversity and rearrangement of marine and nearshore ecosystems. Our assessment of upper-bound values for the first three effects yields a potential loss of between 141 and 227 billion 2014 dollars per year (0.13 - 0.21% of current world GDP).

In a large panel of 26 emerging countries over the last 40 years, aggregate stock market return volatilities, our measure of uncertainty, forecast capital flows. When the stock market return volatility increases, capital inflows decrease and capital outflows increase. We propose a simple decomposition of each country’s market return volatility into two components: countries differ by their exposure to systematic volatility, measured by their uncertainty betas, and by their country-specific volatility. Capital inflows respond to both systematic and country- specific shocks to volatility, and they respond more in high uncertainty beta countries. These results are all statistically significant. A simple portfolio choice model illustrates the impact of uncertainty on gross capital flows: in the model, foreigners are exposed to expropriation risk. When the probability of expropriation increases, foreigners sell the domestic assets to the domestic investors, leading to a counter-cyclical home bias.

We document a highly significant, strongly nonlinear dependence of stock and bond returns on past equity market volatility as measured by the VIX. We propose a new estimator for the shape of the nonlinear forecasting relationship from the cross-section of returns, increasing identification power. The nonlinearities are mirror images for stocks and bonds, revealing flight-to-safety: expected returns increase for stocks when volatility increases from moderate to high levels while they decline for Treasuries. Our findings are supportive of dynamic asset pricing theories where asset managers are subject to withdrawals that tighten when market volatility increases, leading to declines in risk appetite that manifest in flight-to-safety.

We investigate the role of option market makers in the determination of the variance risk premium and the valuation of index options. A reduced-form analysis indicates that a substantial part of the variance risk premium is driven by inventory risk and market maker wealth. When market makers experience extreme wealth losses, a one standard deviation change in inventory risk leads to a change in the variance risk premium of over 6%. Motivated by these findings, we develop a structural model of a market maker with limited capital who is exposed to market variance risk through his inventory. We derive the endogenous variance risk premium and characterize its dependence on inventory risk and market maker wealth. We estimate the model using index returns and options and find that it performs well, especially during the financial crisis.

In this paper, we look into the so-called "revolving door of Washington", which is the movement of individuals between federal government positions and jobs in the private sector, and examine its link to long-run stock returns. We find that firms where current public officials become future employees outperform other firms by a statistically significant 7.96% per year in terms of four-factor alpha. We also show that firms receive more valuable government contracts when a future firm employee is holding a post in the government. Our findings are consistent with the hypothesis of a quid pro quo relationship between some public officials and their future corporate employers. We run a battery of robustness checks to mitigate endogeneity concerns and other alternative explanations.

Before its collapse in September 2008, Lehman Brothers had been using the repurchase agreement (repo) market to hide up to $50 billion from their balance sheet at the end of each quarter. When this “Repo 105” scheme was uncovered (a type of strategy called window dressing), the Securities and Exchange Commission conducted an inquiry into public US financial institutions and concluded that Lehman was an isolated case. Using confidential regulatory data on daily repo transactions from July 2008 to July 2014, I show that non-US banks continue to remove an average of $170 billion from the US tri-party repo market every quarter-end. This amount is more than double the$76 billion market-wide drop in tri-party repo during the turmoil of the 2008 financial crisis and represents about 10% of the entire tri-party repo market. Window dressing induced deleveraging spills over into agency bond markets and money market funds and affects market quality each quarter, and understates balance sheet based measures of systemic risk for non-US banks.

When students fund their education through loans, changes in student borrowing and tuition are interlinked. Tuition cost impacts loan demand but loan supply can also affects equilibrium tuition costs when students are constrained in their borrowing. To resolve this simultaneity problem, we exploit unique student loan data and policy changes in the Stafford Loan Program over the past few years, as a natural experiment, to identify the impact of an increase in the student loan supply on changes in tuition. Our results indicate that institutions more exposed to changes in borrowing limits of federal loan programs raise their tuition disproportionately around these policy changes. These effects are most pronounced for expensive, private institutions that are also not among the most selective as measured by average student SAT scores. We also find evidence of larger tuition increases around changes in the Stafford Loan Program for private for-profit institutions.

No. Regulation often mandates increased transparency to improve how well prices reflect fundamentals. We show that such policy can be counterproductive. We study the optimal decision of an investor who can choose to acquire costly information not only about asset fundamentals but also about the behavior of liquidity traders. We characterize how changing the cost of information acquisition affects the extent to which prices reflect fundamentals. When liquidity trading is price-dependent (e.g., due to forced deleveraging), surprising results emerge: higher transparency, even if exclusively targeting fundamentals, can decrease price informativeness, and cheaper access to non-fundamental information can improve efficiency.

We show in a dynamic trading model that market fragmentation, induced by an informational friction resulting from high frequency trading, may generate market instability (flash crashes) and deleterious welfare consequences from increased trading platform competition. In this context an increase in the mass of dealers with continuous presence in the market can decrease liquidity and welfare. However, with transparent markets, the market is stable, and maximal market participation induces the highest levels of liquidity and welfare.

In recent years, technological innovations and changes in financial regulation induced a new set of liquidity providers to arise on financial markets: high-frequency traders (HFTs). HFTs differ most notably from traditional market participants in the fact that they combine speed and information processing. We compare a setting with HFTs to settings with traders that only have speed technology or only information processing technology available. Speed technology by itself will only be adopted when socially efficient. Information processing technology by itself will only generate mild inefficiencies due to a lemons problem. The combination of the two, however, can lead to the implementation of inefficient speed technology or the amplification of the lemons problem. In the latter case, liquidity evaporates when it is most needed and markets can freeze altogether for periods of time. We also discuss how regulation can prevent such sudden drops of liquidity and how the market may recover after a freeze.

We investigate whether there is a class of market participants who follow strategies that appear to anticipate local price trends. The anticipatory traders we identify can correctly process information prior to the overall market and systematically act before other participants. They use manual and automated order entry methods and exhibit varying processing speeds, but most are not fast enough to make them high frequency traders. In certain cases, other market participants are shown to gain by detecting such trading and reacting to avoid adverse selection costs. To identify these traders, we devise methods to isolate price paths—localized price trends and bid-ask bounce sequences—using order book data from the WTI crude oil futures market.

Endogenous liquidity providers (ELPs) are often viewed as unreliable in times of stress. We examine the activity of a common ELP type – high frequency traders (HFTs) – around extreme price movements (EPMs). We find that HFTs provide liquidity during EPMs and absorb imbalances created by non-high frequency traders (nHFTs). This relation is observed for various types of EPMs, including those resulting in permanent price changes and those that occur during the 2008 financial crisis. There is little evidence of HFTs causing EPMs; most EPMs are triggered by nHFTs. Despite the highly unusual circumstances, HFTs are profitable during the average EPM.

I show that household investment decisions depend on the manner in which information is displayed by exploiting a regulatory change which prohibited the display of past returns for any period shorter than twelve months. In this setting, the information displayed was altered but the attainable information set remained constant. Using a differences-in-differences design, I find that the shock to information display caused a reduction in the sensitivity of fund flows to short-term returns, a decline in overall trade volume, and increased asset allocation toward riskier funds. These results are consistent with models of limited attention and myopic loss aversion. To further explore the concept of salience, I propose a distinction between relative and absolute salience and find evidence consistent with the latter. Overall, my findings indicate that small changes in the manner in which past performance information is displayed can have large effects on household investment behavior and potentially influence households’ accumulated wealth at retirement.

This paper exploits a natural experiment to document adverse selection among prime consumer credit borrowers in the US. In our setting, some borrowers are offered only a short term loan while an observationally equivalent set of borrowers is offered the same short term loan as well as an additional long maturity option. We isolate adverse selection from the causal effect of maturity on repayment by comparing the ex post default behavior of borrowers who took the same short term loan in both settings. We show that when the long term option is available, borrowers who choose the short term loan default less and have higher future FICO scores. Thus, a longer loan maturity induces adverse selection by attracting unobservably less creditworthy borrowers. The difference in the default rate of borrowers who choose the pre-existing short maturity loan and those that self select to the new long maturity option is five percentage points, an economically large effect for prime borrowers whose average default rate is 8.6%. Our results highlight the potential for underprovision of long maturity consumer credit.

We look at the supply side of the credit card market to analyze the pricing and advertising strategies of credit card offers. First, we show that card issuers target poorer and less educated customers with more steeply backward loaded fees (lower introductory APR but much higher late- and over-limit fees), compared to cards offered to educated and richer customers. Second, issuers use rewards programs to screen for unobservable borrower types. Conditional on the same borrower type, cards with rewards such as low Introductory APR, Cash back or Points programs, also have more steeply backward loaded fees, than cards without these salient rewards. In contrast, cards with Miles programs, which are offered only to the most educated and richest consumers, rely much less on backward loaded fees. These findings are in line with predictions from behavioral contract theory that shrouded (or backward loaded) pricing should occur in markets with naïve consumers while products offered to sophisticated consumers cannot be shrouded and need to be priced upfront. Finally, using shocks to the credit worthiness of customers via increases in state level unemployment insurance, we show that card issuers rely more heavily on backward loaded and hidden fees when customers are less exposed to negative cash flow shocks.

University donors choose to contribute to endowment if they want to make a permanent contribution to the university. It is consequently viewed as a responsibility of the university to preserve capital when choosing the investments and spending rule of endowments. Practitioners commonly measure preservation of capital by looking at the excess of expected return over the spending rate, but this criterion involves an incorrect application of the law of large numbers based on products instead of sums. The measure can be corrected by looking expected log return net of spending, which is less by approximately half the variance of returns if period returns are not too volatile. Even if the correct minimum spending rule is applied, the common practice of smoothing spending using a partial adjustment model for spending tends to makes spending unstable in bad times and in fact the probability of eventual ruin is one. We look at optimal spending rules that preserve capital and retain some benefits of smoothing.

We show that the convex incentives of institutional investors like hedge funds can explain their failure to trade against mispricing. The standard mean-variance and hedging components that make up the portfolio often imply opposite stances against mispricing. The first component represents the manager's bets against overpriced securities. By contrast, the manager's hedge against the risk of forfeiting an end-of-period performance fee can result in substantial over-investment in overpriced securities. This ``bubble-riding'' component is more likely to drive the manager's portfolio as overpricing increases. We show that this rationale holds in equilibrium and can substantially exacerbate mispricing.

Alternative assets, such as private equity, hedge funds, and real assets, are illiquid and opaque, and thus pose a challenge to traditional models of asset allocation. In this paper, we study asset allocation and asset pricing in a general equilibrium model with liquid assets and an alternative risky asset, which is opaque and incurs transaction costs, and investors who differ in their experience in assessing the alternative asset. We find that the optimal asset-allocation strategy of the relatively inexperienced investors is to initially tilt their portfolio away from the alternative asset and to hold more of it with experience. Counterintuitively, a decrease in the transaction cost for the alternative asset increases the portfolio tilt at the initial date, and hence, the liquidity discount. Transaction costs may induce inexperienced investors to hold a majority of the illiquid asset at later dates, even if they are pessimistic about future payoffs, and produce a sizable liquidity discount. During periods when the alternative asset is illiquid, investors trade the liquid equity index instead, leading to strong spillover effects.

This paper shows the importance of correcting for sample selection when investing in illiquid assets that trade endogenously. Using a sample of 32,928 paintings that sold repeatedly between 1960 and 2013, we find an asymmetric V-shaped relation between sale probabilities and returns. Adjusting for the resulting selection bias cuts average annual index returns from 8.7 percent to 6.3 percent, lowers Sharpe ratios from 0.27 to 0.11, and materially impacts portfolio allocations. Investing in a broad portfolio of paintings is not attractive, but targeting specific styles or top-selling artists may add value. The methodology extends naturally to other asset classes.

This paper provides novel evidence on the real and financial market effects of legal institutions. Our analysis exploits persistent and externally imposed differences in court enforcement that arose when the U.S. Congress assigned state courts to adjudicate contracts on a subset of Native American reservations. Using area-specific data on small business and household credit, reservations assigned to state courts, which enforce contracts more predictably than tribal courts, have stronger credit markets. Moreover, the law-driven component of credit market development is associated with significantly higher levels of per capita income, with stronger effects in sectors that depend more on external financing.

We demonstrate the central importance of creditors’ ability to use "movable" assets as collateral (as distinct from "immovable" real estate) when borrowing from banks. Using a unique cross-country micro-level loan dataset containing loan-to-value ratios for different assets, we find that loan-to values of loans collateralized with movable assets are lower in countries with weak collateral laws, relative to immovable assets, and that lending is biased towards the use of immovable assets. Using sector-level data, we find that weak movable collateral laws create distortions in the allocation of resources that favor immovable based production. An analysis of Slovakia’s collateral law reform confirms our findings.

Contractual incompleteness is one of the core principles in much of corporate finance theory, but the lack of quantitative measures of completeness has made direct empirical testing difficult. This paper helps fill this gap by proposing several measures of contractual detail using text based analysis. We analyze the default sections of a sample of private loan contracts, generating several measures of contract detail and of the use of common boilerplate language. Contracts are more complex when there is greater default risk, more uncertainty, and longer maturities, and an increased likelihood of renegotiation. Default language also shares greater similarities for larger contracts and contracts with more lenders, suggesting a role for standardization at the expense of complexity. We also find evidence that more complex loan contracts are associated with increases in operating performance suggesting that contractual completeness is associated with greater investment efficiency.

This paper provides novel evidence concerning the association between firm value and state corporate law regarding takeovers. We use plausibly exogenous variation in incorporation at the IPO stage from the law firm identity, finding that Delaware incorporation is negatively related to firm value. Consistent with this, firms reincorporating into (out of) Delaware decrease (increase) in firm value. Reincorporations into Delaware lead to more takeovers and results seem driven by firms with stronger shareholder-stakeholder conflicts of interests. Therefore, state corporate law seems to matter for firm value primarily by affecting shareholder commitment to long-term value creation, only secondarily by reducing managerial entrenchment.

We develop, and solve analytically, a dynamic model of optimal bank liability structure that incorporates bank run, regulatory closure, endogenous default, and endogenous deposit-insurance premium. Value-maximizing banks balance between deposits and debt so that endogenous default coincides with bank closure. Banks' optimal response to regulatory changes often counteracts regulators' objective in reducing bank failures. For example, an optimal response to the introduction of FDIC is to increase leverage by choosing a higher deposit-to-asset ratio and a lower debt-to-asset ratio. We also find that banks' optimal leverage can be substantial even in the absence of material tax benefits.

By providing liquidity to depositors and credit line borrowers, banks are exposed to double-runs on assets and liabilities. For identification, we exploit the 2007 freeze of the European interbank market and the Italian Credit Register. After the shock, there are sizeable, aggregate double-runs. In the cross-section, pre-shock interbank exposure is (unconditionally) unrelated to post-shock credit line drawdowns. However, conditioning on firm observable and unobservable characteristics, higher pre-shock interbank exposure implies more post-shock drawdowns. We show that is the result of active pre-shock liquidity risk management by more exposed banks granting credit lines to firms that run less in a crisis.

This paper models banks’ choice of capital structure and interest rates on loans and deposits when financial services markets are characterized by economies of scope, corporate taxes, and competition from nonbanks (shadow banks). In markets with rich retail lending opportunities but limited retail savings, banks may choose high equity capital (low leverage) when they are not subject to corporate income taxes. When banks are taxed, capital declines and retail borrowers bear the tax burden. In the opposite case of markets with few lending opportunities but plentiful retail savings, the tax burden falls on depositors and banks minimize capital. When banks face greater nonbank competition for retail savings, equilibrium loan rates increase, encouraging entry from nonbank lenders. The model’s predictions are consistent with U.S. banks over the last two centuries. Recent empirical research on how taxes affect bank behavior also supports the model.

Ever increasing competition and search for returns have prompted institutional investors to place their holdings in the equity lending market, making them the largest suppliers of stocks for shorting. This paper shows that changes in the supply of lendable shares have important implications for corporate financial policies. It does so via quasi-experimental methods that build on the evolving framework of institutional investing. Using data from the equity lending market, we show that companies save more cash and repurchase more stocks when institutional investors make more of their stocks available for shorting in the market. The economic magnitudes involved are significant and the policy effects we document are particularly stronger for firms whose stocks are ex-ante less liquid and firms that are credit constrained --- who need to build internal liquidity to absorb external shocks. The study sheds new light on how the changing nature of capital market institutions shapes the liquidity needs of firms.

This paper studies debt maturity management through early refinancing, in which firms simultaneously retire their outstanding bonds before the scheduled due date and issue new bonds as replacements. Speculative-grade firms frequently refinance early to extend the maturity of their outstanding bonds. This pattern is strongest when credit supply conditions are more accommodating, resulting in a procyclical debt maturity structure for speculative-grade firms. In contrast, investment-grade firms do not manage their maturity similarly. This difference has real consequences. Early refinancing and maturity extension allow speculative-grade firms to invest more, while investment-grade firms show no response of investment to early refinancing. I exploit the timing of the protection period of callable bonds to show that the effect of early refinancing on maturity and investment is not driven by unobservable firm characteristics or interest-rate conditions. The evidence is consistent with precautionary maturity management, in which speculative-grade firms extend maturity to hedge against refinancing risk caused by credit supply fluctuations. Longer maturity reduces the possibility of being forced to refinance during credit market downturns, allowing firms more flexibility to invest.

Higher-beta and higher-volatility equities do not earn commensurately higher returns, a pattern known as the risk anomaly. In this paper, we consider the possibility that the risk anomaly represents mispricing and develop its implications for corporate leverage. The risk anomaly generates a simple tradeoff theory: At zero leverage, the overall cost of capital falls as leverage increases equity risk, but as debt becomes riskier the marginal benefit of increasing equity risk declines. We show that there is an interior optimum, and that it is reached at lower leverage for firms with high asset risk. Empirically, consistent with a risk anomaly tradeoff as well as the traditional tradeoff theory, firms with low-risk assets choose higher leverage. More uniquely, the risk anomaly theory helps to explain why leverage is inversely related to systematic risk, holding constant total risk; why leverage is inversely related to both upside and downside risk; why a large number of firms maintain small or zero leverage despite high marginal tax rates; and, why some firms maintain high leverage despite little tax benefit.

We use a simple quantitative asset pricing model to "reverse-engineer" the sequences of stochastic shocks to housing demand and lending standards that are needed to exactly replicate the boom-bust patterns in U.S. household real estate value and mortgage debt over the period 1995 to 2012. Conditional on the observed paths for U.S. disposable income growth and the mortgage interest rate, we consider four different specifications of the model that vary according to the way that household expectations are formed (rational versus moving average forecast rules) and the maturity of the mortgage contract (one-period versus long-term). We find that the model with moving average forecast rules and long-term mortgage debt does best in plausibly matching the patterns observed in the data. Counterfactual simulations show that shifting lending standards (as measured by a loan-to-equity limit) were an important driver of the episode while movements in the mortgage interest rate were not. All models deliver rapid consumption growth during the boom, negative consumption growth during the Great Recession, and sluggish consumption growth during the recovery when households are deleveraging.

This research examines the entry decision and the impact that entry has on retail establishments in Chile. Contrary to evidence in the US, where big box retailers co-locate much more than economic opportunities would indicate makes sense, we find evidence that Chilean retailer entry decisions are based primarily on local and national economic conditions. The existence of incumbent stores repel entry. This may be due to the weaker regulatory and zoning restrictions in Chile or other unobserved differences between the US and Chile. When a new store is opened, the impact on the retail environment (measured by sales) depends on the spatial distance between the entrant and other firms, the length of time since entry, and the characteristics of both the entrant and incumbent. Entry has little to no measurable impact on the sales of incumbent stores. However, the typical entrant tends to increase total sales (incumbents and future entrants) for stores 2 to 4 miles away from the point of entry. In contrast, entrants who attract customers from long distances (larger market areas) tend to have negative spillovers.

This paper documents and explains the striking reversal of fortune of urban America from 2000 to 2010. We show that almost all large American cities have experienced large increases in young professionals near their Central Business Districts over the last decade. We assemble a rich database at a fine spatial scale to test a number of competing hypotheses explaining this recent trend. We first estimate a residential choice model to assess the relative roles of changing amenities, job locations, and housing prices, as well as changing attitudes regarding these factors, in drawing the young and college-educated downtown. We find that diverging preferences for consumption amenities - such as retail, entertainment, and service establishments - explain the diverging location decisions of the young and college-educated relative to their non-college-educated peers and their older college-educated counterparts. In complementary analyses, our data rejects other hypotheses, such as changes in home ownership rates or changes in household formation rates due to delayed marriage and childbirth. These stark new trends within cities have important implications for the future of America’s downtowns, whose current revival does not appear to be driven by temporary trends.

It is widely recognized that severe house price declines played a central role in post-boom mortgage defaults. However, it is not clear how much the housing price boom caused “loose lending” and how much “loose lending” caused the housing price “bubble.” While several studies have explored the lending-house price interaction, results are mixed, and frequently are driven by the prior assumptions of the studies. Thus, it remains unclear how much restrictions on mortgage lending could dampen housing bubbles. This study, recognizing that prices and lending are interdependent and dynamic, uses vector auto-regression (VAR) to examine the relative contribution of several factors thought to be contributors to the house price bubble. It examines the roles of interest rates, leverage, and the wide-spread use of such “exotic” lending practices as low/no doc loans, low FICO scores, interest only loans, very high LTV loans, negative amortization, and “sub-prime” loans in general. The study uses a unique extension of VAR analysis to examine the probable effect that a continuing restriction on “loose lending” might have had on the increase in housing prices in the years leading up to the housing “bust” after 2007. The study uses a panel of quarterly data (2.1 million loans) from 21 Florida counties from 1997 through 2006. We find that variation in lending policy accounts for between 25 and 45 percent of forecast variance in total appreciation during the time. In all of our analysis, the own-influence of appreciation is an important component, suggesting a “momentum” factor, while interest rates, in general, have the weakest effect. We find that extending the conventional VAR impulse-response analysis to 20 quarters, recognizing structure (fundamental vs non-fundamental factors), and introducing a unique sustained impulse analysis are all valuable steps.

We use a large repeated cross-section of houses to estimate a selection model of the supply of owner occupied and rental housing. We find that physical characteristics and unobserved heterogeneity and not location are important for selection. We interpret this as strong evidence in favor of contracting frictions in the rental market relating to maintenance and modification of a dwelling’s physical characteristics. Accounting for selection is important for estimates of rent-to-price ratios and can explain some puzzling correlations between rent-to-price ratio and homeownership rates.

We combine the 2005 China Inter-Census Population Survey data and the 2004 China Manufacturing Census to test whether workers, particularly rural migrants, benefit from labor market Marshallian externalities in manufacturing industries in Chinese cities. We find that workers in general, and rural migrants in particular, benefit from labor market pooling effect (measured by total employment in a city-industry cell) and human capital externalities (measured by share of workers with a college degree or above in a city-industry cell). This finding is robust to various sorting bias tests. However, rural migrants benefit much less compared with local or urban workers, possibly because rural migrants suffer from lack of social network and from double discrimination in terms of being both rural and migrants. Our findings have policy implications on how Chinese cities can attract skilled workers during the rapid urbanization process coupled with global competition.

Agglomerations of economic activity result in higher rents, however it does not exclude the possibility of agglomeration spillovers to risk-induced reasons for investors. We address this issue by testing whether agglomeration economies based on rents in the commercial real estate office market carry over to capitalization rates. Using unique transaction-based data on individual commercial real estate properties in the Netherlands over 1990-2011, we find that agglomeration economies result in lower capitalization rates. This implies a substantial lower capitalization rate by approximately 2 (0.02%) to 8 (0.08%) basis points associated with agglomeration economies. Furthermore, we find that this effect of agglomeration diminishes with further distance when adding mutual exclusive rings, which is in line with the law of economic geography.

Coulson and Fisher (2014) note various incentive issues in the formation of ownership of multi-unit buildings. The flow of housing services, particularly the maintenance of the building is a function of that ownership structure. We find weak evidence that rents in condo buildings are higher than rents in comparable apartment buildings, even accounting for unobservable quality differences in the two types of buildings. This premium generally increases with the number of units in the building, highlighting the incentive problems discussed in Coulson and Fisher (2014).

We investigate the general equilibrium effects of housing supply on asset risk premiums in a production economy with housing. We show that the presence of intratemporal substitution between non-housing and housing consumption has the effect of mitigating consumption risk, in contrast to the result based on an exchange-economy model where consumption composition shocks are independent of non-housing consumption shocks (Piazzesi et al. (2007)). Moreover, a lower housing supply elasticity makes housing price more volatile in response to productivity shocks. It thus increases the housing risk premium via elevated consumption risk but reduces the equity risk premium via enhanced intratemporal substitution effect. Empirically, we use the land value share of home value as proxy for the housing supply elasticity, and find it predicts (negatively) excess stock returns and (positively) excess housing returns, especially in the long-horizon (6-12 quarters) return forecasts.

We model decisions to construct housing under uncertainty, from a panel of land parcels zoned single family residential in LA County. The period 1988 to 2012 includes two price booms followed by the savings and loans and the recent mortgage crises, respectively. The probability of construction depends on structural density and on profits from post-construction housing prices that vary stochastically among investors, and on a start-up cost that we model as noisy. The model detects the exuberance during the price booms as an expectation of a high return from investing in land (animal spirits) and, at the same time, a growing sensitivity to noise than to prices. Measured by entropy, during the 2000-2007 boom, noise climbed to 38% of the reservation price for land, but receded before house prices peaked. Reservation prices exceeded land prices by 6.21% during the boom of 2000-2007, trailing by 2.06% during the crash. We derive the elasticity of housing supply from the annual construction elasticity on each land parcel, remedying the aggregative approach in the extant literature.

This paper analyzes the provision of residential parking in a monocentric city, with the ultimate goal of appraising the desirability and effects of regulations such as a minimum-parking requirement (MPR) per dwelling. The analysis considers three different regimes for provision of parking space: surface parking, underground parking, and structural parking, with the latter two regimes involving capital investment either in the form of an underground parking garage or an above-ground parking structure. Parking area is viewed as a dwelling attribute that, along with floor space, provides utility. In addition, road congestion in the neighborhood (which affects the commuting costs of local residents) depends on the average amount of off-street parking per dwelling, an externality that is ignored by profit-maximizing developers, making the equilibrium inefficient. The analysis explores the equilibrium spatial behavior of the two dwelling attributes as well as residential and parking structural density, and analysis of land rent shows which parking regimes are present in different parts of the city. Efficiency requires an increase in parking area per dwelling at each location, which can be achieved in a crude fashion by an MPR, whose effects are analyzed.

Higher ability workers benefit more from bigger cities while housing costs there are higher for everyone, and yet there is little sorting on ability. A possible explanation is that young individuals have an imperfect assessment of their ability, and, when they learn about it, early decisions have had a lasting impact and reduce their incentives to move. We formalize this idea through an overlapping generations model of urban sorting by workers with heterogeneous ability and self-confidence, with the latter defined as individuals’ assessment of their own ability. We then test the location patterns predicted by the model over the life cycle on panel data from the National Longitudinal Survey of Youth 1979. We find that the city-size choices of individuals at different stages vary with ability and self-confidence in a way that closely matches our theoretical predictions.

We present a model of household life-cycle saving decisions in order to quantify the impact of demographic changes on aggregate household saving rates in Japan, China, and India. The observed age distributions help explain the contrasting saving patterns over time across the three countries. In the model simulations, the growing number of retirees suppresses Japanese saving rates, while decreasing family size increases saving rates for both China and India. Projecting forward, the model predicts lower saving rates in Japan and China.

China’s fiscal decentralization has been praised as an important driver of its economic growth. Interjurisdictional competition has arguably incentivized officials to promote economic development. However, the downside of decentralization is that it enables local authorities to slow or block implementation of centrally‐mandated governance reforms, especially when these may negatively affect local development goals. We show in this paper that cities with larger budget deficits are slower to implement new transparency requirements. Additional evidence points to a bifurcation in development strategies. In fiscally strong cities, increased foreign investment leads to greater disclosure of pollution, suggesting a race to the top for cities hoping to become world class. In fiscally weak cities, foreign investment is associated with decreased disclosure, suggesting they aim to be pollution havens. Similarly, fiscally strong cities increase pollution disclosures if they are highly polluted, suggesting a motivation to clean up, while fiscally weak cities decrease disclosures.

This paper examines how reserve requirements influence the transmission of monetary policy through the bank lending channel in China while also taking into account the role of bank ownership. The transmission of monetary policy is a major question in China as banks play a key role in the Chinese financial system and provide most of the funding to firms. The implementation of Chinese monetary policy is characterized by the reliance on the reserve requirements as a regular policy tool with frequent adjustments. Using a large dataset of 170 Chinese banks for the period 2004-2013, we analyze the reaction of loan supply to changes in reserve requirements. To this end, we analyze the reaction of loan supply to monetary policy actions using the methodology of Kashyap and Stein (1995, 2000). We find no evidence of the bank lending channel through the use of reserve requirements. We observe nonetheless that changes in reserve requirements influence loan growth of banks. The same findings hold true for other monetary policy instruments. Further, we show that the bank ownership influences the transmission of monetary policy. As a consequence, the changes in the ownership structure of the banking industry through privatization or foreign bank entry can foster or hamper the effectiveness of the monetary policy.

Relying on quarterly data since 1998 we estimate, for China and the U.S., small scale econometric models that economize on the number of variables employed and yet are rich enough to provide useful insights about spillover effects between the two countries under different maintained assumptions about the exogeneity of the macroeconomic relationship between them. We conclude that inflation in China responds to credit shocks. Indeed, the monetary transmission mechanism in China resembles that of the US even if the channels through which monetary policy affects their respective economies differ. We also find that the monetary policy stance of the PBOC was helpful in mitigating the impact of the global financial crisis of 2008-9. Finally, spillovers from the US to China are significant and originate from both through the real and financial sectors of the US economy.

Energy poverty is a major problem in the developing world, but social enterprises have begun to light the darkness. We discuss the potential for this approach to solar power; highlight challenges including financing, scale, and maintenance; and discuss the limits of social enterprise as a stand-alone solution to utility provision.

Within the last five years, a majority of states enacted benefit corporation legislation, a new legal form of business that embraces the “triple-bottom line” of people, planet, and profit. Benefit corporation status provides legal protections for directors and officers, who may now balance social and environmental impact with shareholder returns; creates rich opportunities for social entrepreneurs; gives investors more socially responsible options; and offers a helpful designation for consumers. This paper describes the history and purpose of benefit corporations, evaluates their pros and cons, and argues that safeguards against greenwashing make benefit corporations a valuable business form for social enterprise.

With demographic shifts, rising educational costs, and changing demands of the 21st century workplace, U.S. colleges and universities are under fire. This paper shows how one liberal arts institution has integrated social innovation and addressed challenges including budgeting, structure, cross-disciplinarity, and teaching pragmatic liberal arts.

Although students are interested in socially responsible careers, business education has not traditionally emphasized social value creation. We explain how one educational institution is revolutionizing business education by creating the first social entrepreneurship major in an AACSB-accredited business department. We detail steps for development/implementation, keys to success, and student impact.

In some societies outside-entrepreneurs are more active than community-inside entrepreneurs. Institutions, and relationships entrepreneurs have, hamper insiders from starting or succeeding. Outsiders may be less inclined to generate social value. Institutional economics suggests that, rather than outside-entrepreneurs having more resources, inside-entrepreneurs are hampered by a community’s institutions that blind and social relations that bind.

Heterodox economics is a social movement. Fred Lee understood this insight both as militant economist and as historian. Lee's writings imagined a united front of dissenters, but his writings did not have the intended mobilizing effects. I ask what this record tells us about the uses of history in economics.

John Nef and Paul Mantoux have richly described institutional formation resulting from the Industrial Revolution. In this paper I continue my exploration of the theme that derived demand for capital was the cause of industrial capitalism by incorporating the more theoretical work of Thorstein Veblen and Clarence Ayers.

Evolutionary economics provides a self-organizing stabilizing mechanism without relying on mechanic equilibria. However, there are differences between biological and economic evolution, that may entail a general lack of fixation and perhaps the quick loss of information through Muller's ratchet. This contribution addresses potential problems in the context of the literature.

Joseph Schumpeter outlined the process of innovation as it pertains to the business enterprise in productive industry. This paper will explore the financial industry from this vantage, outlining the contributions of Minsky and Veblen while providing an updated analysis of current innovations in the financial sector.

Institutions are patterns of social activity that design roles for persons as social actors, service and are serviced by other institutions, and operate as systems. The main activity inside institutions that is utilized to complete the service responsibilities--which includes production--is the formulation and enforcement of rules, regulations, and requirements. The concepts of closed systems, endogeneity, and self-organized systems have been offered as being relevant for the analysis of institutional systems. As explained here, those concepts are inconsistent with the processing of real-world institutions. When conducting analysis inside institutions, it is necessary to recognize, observe, and model the rules, regulations, requirements which are formulated to be consistent with the normative belief, technological, and ecological criteria of institutions. Generally, social scientists have emphasized belief criteria, and ignored technological and ecological criteria. This paper explains new complex system concepts for conducting analysis inside institutions. The first half of the paper is devoted to explaining new characteristics and theories found in three prior studies. The new knowledge is utilized to analyze and extend other studies completed whose analysis was made inside institutions.

In the past 3 decades, agriculture has expanded very rapidly and the main source of irrigation has been underground water in Iran. Mistaken policies regarding extraction of underground water and inefficient supervision on the loans that were allocated for renovation of irrigation system were the main reasons behind the water crisis in Iran. In the same time, the country faced the problem of accelerating unemployment and underemployment, especially in dry lands and drought stricken regions. With rising poverty and malnourishment, crimes and social problems grew very rapidly; and conserving water and land and creating job opportunities became the most important priorities. As farmers’ income is generally low and private firms do not run the risk to invest in agricultural activities, public work scheme is the only means to prevent agricultural problems to become a catastrophe. Public work projects such as providing water delivery systems, drainage, sewage and sanitation, with direct involvement of local communities, is the most effective way to prevent unemployment and poverty to become a social disaster. Public works schemes can mitigate the thread of expanding water crisis, and revitalize agricultural sector through government investment and direct involvement of local beneficiaries in implementation of watershed projects.

This paper examines aspects of the job guarantee (JG) programs that promote sustainability, which is defined as the well-being of human society, economy and the environment. Literature has shown that the Job guarantee program, funded by the federal government is guided by a set of social objectives rather than profit motive. As a consequence of that, JG programs can end poverty due to joblessness, reduce inequality, perform must needed public and environmental services. Many JG scholars have stressed that the program should be structured and implemented at the local level by established NGOs. Furthermore, this paper adds that when combined with bioregionalism, jobs performed can foster healthy, cohesive, and low carbon community. Along with teaching of alternative philosophy, such as Buddhism, and anarcho-communism, bioregional JG programs may assist the creation of a new social ethos, one that not materialist nor self-maximizing, one that is grounded in cooperation, minimal! ism, democracy and conservation. With the creation of this new ethos, JG program would succeed in transitioning our current society to a sustainable post-capitalist society.

Proposals for a Job Guarantee have been put forward as national policies due to the flexibility the federal government has in paying for the program. This flexibility stems from the ability of the Treasury and the Central Bank to work in concert in using fiscal and monetary policies. An alternative route to job creation at the local level would be to use a complementary currency to pay for community service employment. This paper examines the potential benefits of such a program in terms of environmental sustainability and other advantages of political and economic decentralization and localism.

In The Limits to Growth, Meadows et al. (1972) predicted an end to growth early in the early 21st century. The 30-Year Update of that work as well as numerous scientific studies suggest, that we still face precisely the same limits to growth outlined in the 1972 work. Humanity has, however, accelerated the growth of its ecological footprint on Earth, and limits to growth now threaten a collapse of human society. Our monopoly-capitalist economic system has effectively already been adjusting to the limits to growth by increasingly seeking profit through financialization rather than real production. Mainstream macroeconomists have tended to ignore the limits to growth altogether, and they continue to urge targeting full employment by means of policies to stimulate GDP growth. After the 2007-2009 financial collapse, mainstream economists called supported quantitative easing and neoliberal austerity policies to restore GDP growth to pre-crisis rates. Post Keynesians usually! only differed in that they called for fiscal stimulus rather than quantitative easing and neoliberal reforms to restore GDP growth. Even environmentally-conscious development economists continue to seek growth although they do urge that growth be sustainable. Only a few economists linked to the decroissance movement in France have openly argued for the deep structural changes in our economies to deal with a no-growth economy. This paper argues that Post Keynesians are, despite their recent tepid concern for the environment, actually well-positioned to deal with limits to growth because they are open to active macroeconomic policies that actually change the structure of our economy.

This paper explores whether home buyers are myopic about future energy costs. I exploit variation in energy costs in the form of fuel price changes in Massachusetts where there is an even distribution of homes that heat with oil and homes that heat with natural gas. I nd that relative fuel price shifts cause relative changes in housing transaction prices that are consistent with full capitalization of the present value of future energy cost dierences under relatively low discount rates. These ndings are consistent with home buyers being attentive to energy costs at point of sale and are not consistent with myopia

Noise, traffic and air pollution are among common externalities of industrial production and mining. While these externalities arise on site and are experienced locally, they can be exported through the transport of output from the production site, via trucking and rail. As a result, the broader region surrounding the industrial activity, together with more distant communities, are brought to bear the externalities of those land uses through increased load on the transport infrastructure. The economics literature on locally undesirable land uses (LULUs) has largely focused on measuring external impacts surrounding the site, but externalities around the transport network are potentially more problematic. Whereas endogenous land prices discourage the siting of LULUs near economically valuable alternative land uses, this pricing mechanism is absent on open access transport networks. For this reason, in the absence of government regulation, one would expect industrial firms to internalize land use externalities in their location choice but not with respect to their use of existing transport networks. We examine these ideas in detail in the context of the recent “frac-sand” mining boom in Wisconsin. Due to the proliferation of hydraulic fracturing in North Dakota, Texas, Pennsylvania and elsewhere, demand for otherwise low-value silica sand in Wisconsin and neighboring states spiked during 2010-2013. This led to an increase from 10 to approximately 130 mines and processing facilities over a four-year period. The sand boom has triggered complaints of local externalities including noise, light, industrial traffic and air pollution on and near transportation networks. We study this episode theoretically and empirically by combining panel data on sand mine openings and production, traffic on nearby roads and rail tracks, vehicle accidents, local air pollution and property values. We find preliminary evidence of negative externalities of increased mining on road use, concentrated near sources and freight lines

This paper proposes a hedonic approach for estimating the impacts of climate change on agriculture that is robust to spatially-dependent omitted variables. I exploit the fact that certain estimators amplify the influence of such confounders to varying degrees, to detect the sign and magnitude of the bias and correct for it. Results suggest that large impacts of climate change on US agriculture are unlikely, in contrast to the large damages found in the literature. Previous findings appear biased downward severalfold, possibly due to the omitted differential rise of development pressure on farmland, which is correlated with climate. Results stand to various robustness checks. (JEL Q15, Q51, Q54, R14)

Despite the fact that dynamic models of location choice are well-motivated in the literature (as the housing market features large moving costs and predictability of amenities), it remains that the estimation of these models is not without substantial costs to the econometrician in terms of computation and/or additional data requirements. In this paper, we build off of the intuitive (static) modeling framework of Rosen (1974) and specify a simple, forward-looking model of location choice. We use this model, along with a series of insightful graphs, to describe more fully the potential biases associated with the static approach and relate this bias to the time-series trend of the amenity of interest. This allows the researcher to determine, a priori, the value of extending the empirical analysis to a forward-looking approach. In addition, we illustrate an empirically-relevant example where, despite a time-varying amenity, the static model and a forward-looking model arrive at the same estimate of willingness to pay. Finally, we apply these models to estimate the willingness-to-pay to avoid violent crime. Recovering estimates separately by (geographic) area allows us to illustrate various degrees of bias induced by assuming myopic agents.

Recent empirical evidence suggests that when consumers are faced with complex nonlinear pricing schedules, they make choices based on average (rather than marginal) prices. Taking such behavior as given, we characterize a monopolist's optimal nonlinear price schedule. In contrast to a setting with neoclassical ("marginal price") consumers, optimal nonlinear prices in a setting with "average-price bias" exhibit quantity premia rather than quantity discounts. In addition, consumption is distorted downward for consumers with the highest marginal values. Both of these properties arise from the fact that the monopolist may extract all of the information rents from an average-price bias consumer, but must now leave such consumers "curvature rents." Whether or not a monopolist prefers neoclassical consumers to those with an average-price bias depends upon underlying preferences, type distributions and costs.

This paper extends the informativeness principle, as originally formulated by Holmstrom (1979), to settings in which the first-order approach does not hold. We introduce a "generalized informativeness principle" that takes into account non-local incentive constraints and holds generically. The sufficient conditions for a signal to have value for contracting are stronger than previously believed, potentially rationalizing the simplicity of real-life contracts.

This paper develops a theory of optimal taxation with behavioral agents. We use a general behavioral framework that encompasses a wide range of behavioral biases such as misperceptions, internalities and mental accounting. We revisit the three pillars of optimal taxation: Ramsey (linear commodity taxation to raise revenues and redistribute), Pigou (linear commodity taxation to correct externalities) and Mirrlees (nonlinear income taxation). We show how the canonical optimal tax formulas are modified and lead to a rich set of novel economic insights. We also show how to incorporate nudges in the optimal taxation frameworks, and jointly characterize optimal taxes and nudges. We explore the Diamond-Mirrlees productive efficiency result and the Atkinson-Stiglitz uniform commodity taxation proposition, and find that they are more likely to fail with behavioral agents.

The purpose of this paper is to provide a complete characterization of the optimal contract with moral hazard and two sided asymmetric information. The goal is to understand the relationship between the form of asymmetric information and contract form, including bonus pay, flat reward systems, and 360 review systems that rely upon the information of both principal and agent.

We investigate how multinational firms contribute to the transmission of shocks across countries using a large firm-level dataset that contains ownership information for 8 million firms in 34 countries. We use these data to document two novel empirical patterns. First, foreign affiliate and headquarter sales exhibit strong positive comovement: a 10% growth in the sales of the headquarter is associated with a 2% growth in the sales of the affiliate. Second, shocks to the source country account for a significant fraction of the variation in sales growth at the source-destination level. We propose a parsimonious quantitative model to interpret these findings and to evaluate the role of multinational firms for international business cycle transmission. For the typical country, the impact of foreign shocks transmitted by all foreign multinationals combined is non-negligible, accounting for about 10% of aggregate productivity shocks. On the other hand, since bilateral multinational production shares are small, interdependence between most individual country pairs is minimal. Our results do reveal substantial heterogeneity in the strength of this mechanism, with the most integrated countries significantly more affected by foreign shocks.

Using novel firm-level microdata and leveraging a natural experiment, this paper provides causal evidence for the role of trade and multinational firms in the cross-country transmission of shocks. Foreign multinational affiliates in the U.S. exhibit substantial intermediate input linkages with their source country. The scope for these linkages to generate cross-country spillovers in the domestic market depends on the elasticity of substitution with respect to other inputs. Using the 2011 Tohoku earthquake as an exogenous shock, we estimate this elasticity for those firms most reliant on Japanese imported inputs: the U.S. affiliates of Japanese multinationals. These firms suffered large drops in U.S. output in the months following the shock, roughly one-for-one with the drop in imports and consistent with a Leontief relationship between imported and domestic inputs. Structural estimates of the production function for these firms yield disaggregated production elasticities that are similarly low. Our results suggest that global supply chains are sufficiently rigid to play an important role in the cross-country transmission of shocks.

A salient empirical regularity of multinational production (MP) is that foreign affiliate sales are decreasing in trade costs. As a response, intra-firm trade from parents to foreign affiliates has been combined with standard models of horizontal MP to generate complementarities between trade and multinational activity that deliver gravity-style predictions for foreign affiliates’ sales. However, intra-firm trade is not common across foreign affiliates, but rather concentrated among a small set of large multinational firms (Ramondo et al., 2014). In addition, we document that not only firms in the upper-tail of the firm size distribution are subject to gravity forces, but also the sales of relatively small foreign affiliates are significantly affected by geographical barriers even when they rarely conduct intra-firm transactions. Two puzzles emerge: (i) why is intra-firm trade concentrated among the largest multinational firms? (ii) what are the mechanisms that drive affiliates’ sales in the lower tail of the distribution to obey gravity forces, even in the absence of intra-firm trade? In this paper we deliver a framework to explain these two phenomena.

Many models of international trade feature an up-front cost that firms pay to enter foreign markets. Despite the important role these costs play in determining trade linkages between international markets, we understand little about their structure or magnitude. In particular, we do not know if there are country complementarities or a global portion in these entry costs. A global sunk export entry cost is one the firm must pay to access any foreign market and would lead to increasing returns in the number of destinations served. Country complementarities might be geographic, for example, entering Germany reduces the cost of entering France, or they might be linguistic, so that exporting to Mexico lowers barriers to entry into Spain. The structure of these barriers to entry is important because it determines the structure of hysteresis and how trade between countries responds to shocks. Characterizing the structure of sunk entry costs relies on careful identification of state dependence conditional on heterogeneity. I employ reduced form and structural approaches along with the confidential universe of U.S. manufacturers' exporting behavior to conclude that export entry costs are mainly country specific. The structural model allows me to estimate that the global entry cost U.S. firms face is $20 thousand while country specific entry costs are between $3.7 million and $4.2 million per market.

The substantial `value-added' literature that seeks to measure the overall impact of teachers on student achievement does not distinguish between teacher effects that are invariant to prevailing incentives and those that are responsive to them. In contrast, we develop an empirical approach that, for the first time, allows us to separate out incentive-varying teacher effort from incentive-invariant teacher ability, and further, to explore whether the effects of effort and ability persist differentially. Our strategy exploits exogenous variation in the incentive strength of a well-known federal accountability scheme, along with rich administrative data covering all public school students in North Carolina. We separately identify teacher effort and teacher ability to determine their relative magnitudes contemporaneously, finding that a one standard deviation increase in teacher ability is equivalent to 21 percent of a standard deviation increase in student test scores, while an analogous change in teacher effort accounts for 8 percent of such an increase. We then use prior incentive strength to reject the hypothesis that the persistence of teacher ability and effort is similar. To supplement our regression-based evidence, we set out a complementary structural estimation procedure, showing that effort affects future scores less than ability. From a policy perspective, our results indicate that incentives matter when measuring teacher value-added. Our analysis also has implications for the cost effectiveness of sharpening incentives relative to altering the distribution of teacher ability across classrooms and schools.

Does financial aid increase college attendance and completion? Selection bias and the high implicit tax rates imposed by overlapping aid programs make this question difficult to answer. This paper reports initial findings from a randomized evaluation of a large privately-funded scholarship program for applicants to Nebraska’s public colleges and universities. Our research design answers the challenges of aid evaluation with random assignment of aid offers and a strong first stage for aid received: randomly assigned aid offers increased aid received markedly. This in turn appears to have boosted enrollment and persistence, while also shifting many applicants from two- to four-year schools. Awards offered to nonwhite applicants, to those with relatively low academic achievement, and to applicants who targeted less-selective four-year programs (as measured by admissions rates) generated the largest gains in enrollment and persistence, while effects were much smaller for applicants predicted to have stronger post-secondary outcomes in the absence of treatment. Thus, awards enabled groups with historically-low college attendance to ‘level up,’ largely equalizing enrollment and persistence rates with traditionally college-bound peers, particularly at four-year programs. Awards offered to prospective community college students had little effect on college enrollment or the type of college attended.

Earnings inequality in the United States has increased rapidly over the last three decades, but little is known about the role of firms in this trend. For example, how much of the rise in earnings inequality can be attributed to rising dispersion between firms in the average wages they pay, and how much is due to rising wage dispersion among workers within firms? Similarly, how did rising inequality affect the wage earnings of different types of workers working for the same employer---men vs. women, young vs. old, new hires vs. senior employees, and so on? To address questions like these, we begin by constructing a matched employer-employee data set for the United States using administrative records. Covering all U.S. firms between 1978 to 2012, we show that virtually all of the rise in earnings dispersion between workers is accounted for by increasing dispersion in average wages paid by the employers of these individuals. In contrast, pay differences within employers have remained virtually unchanged, a finding that is robust across industries, geographical regions, and firm size groups. Furthermore, the wage gap between the most highly paid employees within these firms (CEOs and high level executives) and the average employee has increased only by a small amount, refuting oft-made claims that such widening gaps account for a large fraction of rising inequality in the population.

The structure of marriage and child-rearing in U.S. households has undergone two marked shifts in the last three decades: a steep decline in the prevalence of marriage among young adults, and a sharp rise in the fraction of children born to unmarried mothers or living in single-headed households, the latter of which is concentrated among non-college and minority households and thus particularly affects lower-SES children. A potential contributor to both phenomena is the declining labor market opportunities faced by non-college and minority males, which make these males less valuable as marital partners. We explore the impact of the labor market on the marriage market by exploiting large scale, plausibly exogenous trade-induced shocks to local manufacturing employment, stemming from rising import competition from China. We trace out how these shocks impact marriage, divorce, childbearing, and the prevalence of children growing up in poor and single-parent households. We find that trade shocks between 1990 and 2010 have had quite modest impacts on household structure in aggregate. When we disaggregate these shocks into components affecting male versus female employment, however, we find impacts that are both economically and statistically significant. Import shocks concentrated on male employment reduce marriage rates and fertility, raise the fraction of births due to teen mothers, and, most significantly, increase the fraction of children living either in poverty or in single-headed households. On net, our findings do not suggest that rising import competition from China has been an important contributor to changing marital behavior in this time interval, since these shocks have not been particularly biased against males. But our analysis strongly supports the hypothesis that changes in labor demand that reduce male employment opportunities may be a quantitatively important contributor to the rise in the share of U.S. children living in poor and in single-headed households.

Since the start of the Great Recession, there has been a substantial decline in the rate of labor force participation (LFPR). Part of this decline appears to be the result of secular factors like the aging of the labor force. Using the SIPP, we focus on the fall in the participation rate of individuals aged 25 to 54. A novel contribution of our approach is to examine how this decline varies across the distribution of household income. We find that almost all of the decline in the LFPR of 25- to 54-year-olds can be attributed to declining participation by individuals in households in the upper half of the household income distribution. The result that the decline in prime-age LFPR is concentrated in higher-income households continues a trend that started as early as 2001.

We document two striking facts about U.S. firm dynamics and interpret their significance for aggregate employment dynamics. The first observation is the steady decline in the firm entry rate over the last thirty years, and the second is the gradual shift of employment from younger to older firms over the same period. Both observations hold across industries and geographies. We show that, despite these trends, firms’ life-cycle dynamics and business-cycle properties have remained virtually unchanged. Consequently, the reallocation of employment toward older firms results entirely from the cumulative effect of the thirty-year decline in firm entry. This “start-up deficit” has both an immediate and a delayed (by shifting the age distribution) effect on aggregate employment dynamics. Recognizing this evolving heterogeneity is crucial for understanding shifts in aggregate behavior of employment over the business cycle. With mature firms less responsive to business cycle shocks, the cyclical component of aggregate employment growth diminishes with the increasing share of mature firms. At the same time, the trend decline in firm entry masks the diminishing cyclicality during contractions and reinforces it during expansions, which generates the appearance of jobless recoveries where aggregate employment recovers slowly relative to output.

Using quarterly data for the U.K. from 1993 through 2012, we document that in economic downturns a smaller fraction of unemployed workers change their career when starting a new job. Moreover, the proportion of total hires that involves a career change for the worker also drops in recessions. Together with a simultaneous drop in overall turnover, this implies that the number of career changes declines during recessions. These results indicate that recessions are times of subdued reallocation rather than of accelerated and involuntary structural transformation. We back this interpretation up with evidence on who changes careers, which industries and occupations they come from and go to, and at which wage gains.

We study the behavior of the US labor share over the past 65 years using new data from the post-2013 revision of the national income and product accounts and the fixed assets tables capitalizing intellectual property products (IPP). We find that IPP capital entirely explains the observed decline of the US labor share, which otherwise is secularly constant over the past 65 years for structures and equipment capital. The labor share decline simply reflects the fact that the US economy is undergoing a transition toward a larger IPP sector.

We propose a method for estimating average treatment effects when the propensity score is known.

This paper studies the identification and estimation of nonseparable models with endogenous regressors but without any excluded instrument. Instead, only exogenous regressors that affect both the endogenous regressors and the outcome are available. We show that identification of marginal effects can still be achieved under three conditions. The first is a standard control function condition. The second is a weak separability condition on the effect of the endogenous and exogenous regressors on the outcome. The third is that we can find some compensating variations where the direct effect of the exogenous regressors on the outcome compensates its indirect effect through the endogenous regressor. Our framework encompasses continuous and limited dependent outcomes, and some of our results apply to the case of discrete instruments. Finally, we develop a semiparametric estimator and run some Monte Carlo simulations.

This paper develops extremum estimation and inference results for nonlinear models with very general forms of potential identification failure when the source of this identification failure is known. We examine models that may have a general deficient rank Jacobian in certain parts of the parameter space, leading to an identified set that is a sub-manifold of the parameter space. We examine standard extremum estimators and Wald statistics under a comprehensive class of parameter sequences characterizing the strength of identification of the model parameters, ranging from non-identification to strong identification. Allowing for a general singular Jacobian as the limiting point of weak identification allows us to study estimation and inference in many models to which previous results in the weak identification literature do not apply. Using the asymptotic results, we propose two hypothesis testing methods that make use of a standard Wald statistic and data-dependent critical values, leading to tests with correct asymptotic size regardless of identification strength and good power properties. Importantly, this allows one to directly conduct uniform inference on low- dimensional functions of the model parameters, including one-dimensional subvectors. The paper focuses on three examples of models to illustrate the results: sample selection models, models of potential outcomes with endogenous treatment and threshold crossing models.

This paper studies the averaging GMM estimator that combines a conservative GMM estimator based on valid moment conditions and an aggressive GMM estimator based on both valid and possibly misspecified moment conditions, where the weight is the sample analog of an infeasible optimal weight. It is an alternative to pre-test estimators that switch between the conservative and aggressive estimators based on model specification tests. This averaging estimator is robust in the sense that it uniformly dominates the conservative estimator by reducing the risk under any degree of misspecification, whereas the pre-test estimators reduce the risk in parts of the parameter space and increase it in other parts. To establish uniform dominance of one estimator over another, we establish asymptotic theories on uniform approximations of the finite-sample risk differences between two estimators. These asymptotic results are developed along drifting sequences of data generating processes (DGPs) that model various degrees of local misspecification as well as global misspecification. Extending seminal results on the James-Stein estimator, the uniform dominance is established in non-Gaussian semiparametric nonlinear models. The proposed averaging estimator is applied to estimate the human capital production function in a life-cycle labor supply model.

This paper considers linear equation r ̂=Kφ+U in functional spaces where K and the variance of U, Σ are given. The function φ is estimated by minimizing a Tikhonov functional 〖||Ar ̂-AKφ||〗^(2 )+α||Lφ||^2 where α is a regularization parameter and A and L are two chosen operators. We analyse the optimal mean integrated squared error, min┬α⁡〖E||φ ̂_α-φ||^2 〗, in order to determine the optimal choice of A (and L). Contrary to the finite dimensional case A=Σ^(-1/2) is not optimal and the best choice depends on the regularity of φ and the degree of ill-posedness of Σ.

The 2007-2008 global financial crisis and the subsequent anemic recovery have rekindled academic interest in quantifying the impact of uncertainty on macroeconomic dynamics based on the premise that uncertainty causes economic activity to slow down and contract. In this paper, we study the interrelation between financial markets volatility and economic activity assuming that both variables are driven by the same set of unobserved common factors. By relaying on the multi-country nature of our data, we can identify and estimate a statistically significant and economically sizable association between country-specific GDP growth and global volatility, but no associations between volatility and the business cycle over and above those driven by the factors assumed to be common to both volatility and growth.

The global financial crisis led to a sharp contraction in US and Euro Area (EA) GDP, and was followed by a long-lasting slump. The post-crisis adjustment in the US and the EA shows striking differences. The EA slump is more persistent and characterized by a more pronounced contraction in TFP growth. During the slump, the wage share rose in the EA, while it fell in the US. This paper uses an estimated 3-region (US, EA and ROW) New Keynesian DSGE model with sovereign debt, banks and financial shocks to quantify the drivers of the divergent EA and US adjustment paths. Our results suggest that the European sovereign debt crisis following the 2009 recession, a less aggressive initial response of EA monetary and fiscal policy, a more vulnerable banking sector and greater rigidities in goods and labor markets explain the greater persistence of the EA slump. Moreover, the interaction between downward nominal rigidities and financial frictions is key for accounting for the persistent European slump. A negative TFP shock in combination with wage adjustment frictions generates an increase of the wage share as observed for the EA.

This paper documents a new type of cross-border bank lending channel, using a novel dataset on the balance sheets of U.S. branches of foreign banks and their syndicated loans. During the European sovereign debt crisis in mid-2011, some of the U.S. branches of European banks faced a dollar liquidity shock — due to their perceived risk reflecting the sovereign risk of their countries of origin — which in turn affected the branches’ lending to U.S. entities. Our results show that: (1) The U.S. branches of euro-area banks suffered a liquidity shock in the form of reduced access to large time deposits, mainly from U.S. money market funds, which prompted them to reduce lending to U.S. firms. The reduction in lending took place mostly along the extensive margin and negatively affected U.S. corporate investment. (2) The affected branches received additional funding from their parent banks, but not enough to offset the lost deposits. (3) The liquidity shock was related to country rather than bank-specific characteristics, reflecting a broad sentiment against the liabilities of euro-area banks.

We present novel evidence that, in present value terms, creditors with short maturity securities suffer significantly more than creditors with long maturity securities during recent sovereign debt restructuring episodes. We also document a new stylized fact, consistent with this novel evidence, that the sovereign yield curve becomes systematically inverted as countries are approaching sovereign default or restructuring. We then show, using a simple model of sovereign debt, how model-implied differential NPV haircuts between short- and long-term creditors, can explain the observed dynamics of the sovereign yield curve.

Across the industrialized world, health and mortality gradients by education and income have generally been steepening. The leading explanations for the increased gaps in life expectancy involve differential trends in smoking, diet and exercise, stress, chronic disease management, and access to health care. Less well known, however, is the impact these trends will have on public programs and their progressivity—especially Social Security and Medicare. <br /> <br /> To fill this gap, this paper uses the Future Elderly Model (FEM), a micro-simulation model of health and economic outcomes for older Americans, to estimate the effects of steeper mortality gradients on the progressivity of Social Security and Medicare benefits. This study produces projections to develop new insights about the long-run macroeconomic effects of the aging U.S. population, with a focus on distributional consequences. This paper expands the FEM to incorporate user assumptions about the trends in inequality, and then examines how changes in inequality affect progressivity. Findings suggest significant reductions in progressivity of both Medicare and Social Security if current mortality trends persist and noticeable effects on total program costs.

Life expectancy at age 65 has increased by 5 years over the past half-century, with the greatest gains going to high-income individuals. This trend towards longer lives jeopardizes the long-term solvency of the Social Security system and has raised the specter of Social Security reform. How might rising inequality in life expectancy and potential Social Security reforms affect lifetime Social Security benefits, and how does this vary with lifetime income? We explore these questions, making use of the Future Elderly Model (FEM), a microsimulation model that tracks cohorts starting at age 50 and projects future health status and economic outcomes using data from the Health and Retirement Study, the Medical Expenditure Panel Survey, and the Medicare Current Beneficiary Survey. In the model, retirement and benefit claiming decisions are dynamic and depend on health and economic conditions. We find that rising inequality in life expectancy reduces the progressivity of the Social Security system. We also find that there are potential reforms, including raising the Full Retirement Age, which would have a progressive effect on lifetime benefits.

Over a decade ago, the aspirin cardiovascular data reached a tipping point and led to the United States Preventive Services Task Force (USPSTF) giving daily aspirin an “A” recommendation for the prevention of myocardial infarction in men and ischemic stroke in women. Despite this, aspirin use remains low relative to the populations targeted by the USPSTF. This article seeks to determine the long-term economic and population health impact of full compliance with the USPSTF guidelines. To that end, simulations are conducted using the Future Elderly Model (FEM), an established dynamic microsimulation that follows Americans aged 51 and older. Using the well-recognized estimates of the health impact of aspirin–including both its known benefits and main side effects–, we construct an FEM scenario in which daily aspirin use increases in accordance with the USPSTF guidelines. The difference in outcomes between this scenario and the baseline FEM reveals the impact of compliance with the guidelines. We account for the uncertainty in aspirin effectiveness by sampling estimates of the clinical effects from the confidence intervals for relative risks reported by the medical literature. The outcomes projected are chosen to provide a broad perspective of both the individual and societal impacts of compliance with the guidelines, and include: incidence of heart disease, stroke, and cancer, life expectancy, quality-adjusted life expectancy, disability-free life expectancy, medical costs–decomposed into total medical spending, Medicare parts A, B and D, and Medicaid–, Social Security benefits, Disability benefits, and Supplemental Security Income.

Organization of care between the four care diamond institutions in a developing and emerging economy is a matter of great concern for gender equality, for adequacy of care and for efficient functioning of the labour market. This is because (1) the main burden of care usually falls on households, resulting in women’s time stress and time poverty, (2) unpaid work, which is a lifelong time tax on women, restricts their opportunities in life, (3) unequal burden of unpaid care, along with the social norms, result in their inferior status in the labour market, and (4) frequently care deficiency affects the present and future well being of children. The usual approaches recommended include policies that help women and men in managing work-life balance and in integrating women in the labour market, policies that raise opportunities for women in the labour market through education and training in skills and entrepreneurship and the 3-R approach of recognizing, reducing and reorganizing unpaid care (shifting some to the mainstream economy). Though these approaches have definite advantages, they are not adequate to ensure complete gender equality in the economy and to provide level playing field to women in the labour market with men. They also cannot optimize the use of labour force under an efficient labour market. This is because the present view of the macro-economy is fractured, as it leaves out a major part of the economy. The paper shows empirically how incorporating unpaid care into labour market analysis helps and how a wider view of macro-economy integrates unpaid care in promoting gender equality, good care and healthy and sustainable economy.

This study analyzes the impact of social inclusion of lesbian, gay, bisexual, and transgender (LGBT) people on economic development in 39 countries, 29 of which are emerging economies and 10 of which have active LGBT social movements and have significance to global development institutions. Little empirical research has tested the theoretical prediction - based on several economic frameworks – that inclusion of LGBT people is linked to a stronger economy. The analysis takes two approaches. First, the “micro-level” approach uses an extensive literature review to identify barriers to freedoms for LGBT people that can affect economic development. Second, the “macro-level” approach defines inclusion as the legal rights of LGBT people, measured through two newly-developed indices. We use multivariate regression to analyze the effect of LGBT rights on per capita GDP and the Human Development Index. The micro-level analysis finds substantial evidence that LGBT people are limited in their freedoms in ways that also create economic harms, such as lost labor time, lost productivity, underinvestment in human capital, and the inefficient allocation of human resources through discrimination. These impacts, in turn, may act as a drag on overall economic output. The macro-level analysis uses a fixed effects approach from 1990-2011 and reveals a clear positive correlation between per capita GDP and legal rights for LGB and transgender people In the full regressions, the impact of an additional legal right on per capita GDP is approximately $320, or about 3% of the average GDP per capita in the sample.

Previous studies have found increased specialization and an increased income gap between heterosexual spouses after childbirth. This pattern is often contributed to the fact that men have on average higher wages and thus are relatively more productive in the labor market.<br /> However a complementary explanation is that gender in itself affects the behavior of couples. The aim of this paper is to investigate the importance of gender for the division of labor in couples after having children.<br /> <br /> In this paper I compare the effect of entering parenthood on the within couples income gaps in lesbian and heterosexual couples. Swedish population wide register data is used to sample lesbian and heterosexual couples with similar pre-childbirth income gaps. A difference-in-differences strategy is used to estimate the effect of the gender composition in couples on the change in the spousal income gap after childbirth. In this way I can estimate the effect of the gender composition of the parents on the division of labor after childbirth.<br /> <br /> Heterosexual couples show increased specialization, in terms of a vast increase in their labor income gap, after becoming parents. In general the income gap is smaller in lesbian couples after childbirth also when comparing lesbian and heterosexual couples with the same pre-parenthood income gap. In lesbian couples, the child's birth mother takes more time off work to stay on parental leave in the first two years of the child's life. After that the division of labor in lesbian couples depends mainly on which partner gave birth to the child and the spouses relative earnings before childbirth.

The financial crisis of 2007-2009 revealed that the corporate complexity of most of the Global Systemically Important Banks (G-SIBs) presented a formidable obstacle to any plausible orderly resolution of these institutions. This paper documents the extent of this complexity making use of an historical time series, developed by the authors, that shows the evolution of the number of majority-owned subsidiaries of G-SIBs over time. After a very significant increase in complexity before the crisis and until 2011, this trend may be reversing, possibly in response to regulatory and market pressures on banks since then. Nonetheless the reduction in complexity has been uneven across institutions and may not persist. The econometric analysis of this new set of panel data produces two key results with relevant policy implications: first, the relationship found in previous studies between the number of subsidiaries and bank size loses significance when time effects are introduced; second, large mergers and acquisitions are a key driver of complexity and their effect remains significant even when time effects are considered.

Global banks are diverse in size, business models, and organizational structure, and are often part of financial conglomerates. We conjecture that the complexity of these conglomerates, including their business lines and locational choices, influences the management of the global banks. Conditional on size, organizational complexity, as defined by numbers of entities in the conglomerate, should lead to more specialization by the participating entities. In particular we posit and show that the more complex global conglomerates manage their banks to support the liquidity needs of the overall organization. Using micro data on global banks with branch operations in the United States and details about the conglomerates to which they belong, we show that those branches that belong to more complex conglomerates are larger, have relatively less lending within the US, relatively more reliance on wholesale funding, and more net lending to the financial conglomerate. In response to an exogenous positive funding shock in the US, the branches associated with more complex families exhibit statistically and economically weaker expansions of balance sheets, loans, and funding compared with branches in simpler organizations.

The objective of this paper is to identify the bank organizational structures that generate substantial systemic risk and to explain why banks have incentives to create them. We seek the explanation in a bank's incentives to exploit financial synergies by choosing an organizational structure that maximizes the benefits a bank can derive from an interest tax shield, reduced default costs and the possibility of a state bailout in the presence of limited liability for legally separate entities. In both a calibrated and some stressed scenarios we show that a subsidiary structure generates the highest value and the highest systemic risk. Complexity exacerbates the incentive to lever up in subsidiary structures. It blows up the expected loss without a comparable increase in value. The main sources of complexity in this paper are differences in asset size and risk across bank affiliates in different countries or with different financial activities. We also provide a perspective on current reform efforts with respect to the organization of banks.

We introduce a dynamic network model of interbank lending and estimate the parameters by indirect inference using network statistics of the Dutch interbank market from 2008 to 2011. We find that credit risk uncertainty and peer monitoring are significant factors in explaining the sparse core-periphery structure of the market and the presence of relationship lending. Shocks to credit risk uncertainty lead to extended periods of low market activity, amplified by a reduction in peer monitoring. Moreover, changes in the central bank’s interest rate corridor have both a direct effect on the market as well as an indirect effect by changing banks’ monitoring efforts.

including higher pay, more lucrative fringe benefits packages, and greater access to<br /> employer-sponsored training – the trappings of equitably shared prosperity. Besides the<br /> advantages in compensation and training opportunities for workers in larger firms, it is<br /> reasonable to conclude that by investing in training at a higher rate than their smaller<br /> counterparts, larger firms have played a particularly prominent role in the formation of the<br /> economy’s human capital stock. Evidence is mounting, however, that employers in the<br /> U.S., especially larger employers, may be backing away from this critical function of human<br /> capital investor, potentially leaving a gap in the infrastructure that produces the nation’s<br /> human capital and compromising the potential productivity of the workforce. Arguably, this<br /> declining commitment to job training, especially among large firms, is an important, yet<br /> under-developed, dimension to our economy’s waning commitment to shared prosperity.<br /> The proposed study will provide empirical evidence on the contours of the overall decline in<br /> job training, with particular emphasis on the decline in training in large firms compared to<br /> their smaller counterparts. I will use the Survey of Income and Program Participation (SIPP),<br /> a large nationally-representative data set, to provide broad estimates of the reduction in<br /> training, and in particular, the change in the size-training effect over the first decade of the<br /> 2000s. The data set is large enough to allow omparisons of how the size-training effect<br /> differs by gender, age, and other important d graphic characteristics, which will also be<br /> featured in the paper.

Despite the recent recovery from the high unemployment rates that followed the Great Recession, anxiety over the future direction of the labor market and the implications for low- and moderate-income workers has remained at heightened levels. While some analysts blame the sluggish recovery on the business cycle and insufficient demand, others have interpreted the anemic performance of the labor market as a sign that some type of fundamental mismatch exists between employer demands and the skills of available workers. Many commentators have declared that the nation faces a severe shortage of science, technology, engineering, and math (STEM) skills. Sorting out the type and degree of skill mismatch is a critical matter for public policy. In this research I use detailed skill surveys to gather data on both skill demands and the prevalence of skill gaps in two fastgrowing technical occupations in the information technology and healthcare industries: computer helpdesk technicians and clinical laboratory technicians. Following prior research I have conducted on the manufacturing sector (Weaver and Osterman 2014), I rigorously evaluate claims of skill mismatch by going beyond opinion questions and anecdotal reports.

This paper has several goals. First, I show that during the “Great Recession”, alternative measures of unemployment (e.g., part time for economic reasons) rose to record levels, and during the current recovery remain elevated, especially for vulnerable workers. Second, I demonstrate that alternative measures of unemployment are more sensitive to changes in local macroeconomic conditions than the “official” BLS unemployment rate. That is, a one percentage point increase in an area’s GSP has a greater impact on the unemployment rate when it includes respondents that are working part-time for economic reasons, discouraged, and out of the labor force but want a job. Third, I use metropolitan area “official” unemployment rates to report how different recession and recovery patterns (e.g., weak and strong) impact the employment outcomes of vulnerable workers. The results affirm that any premature slowing of U.S. aggregate demand will diminish the hopes of millions of Americans who are ready, willing, and able to expand their attachment to the workforce. Some of the key findings are as follows: • The educational attainment, gender, race, ethnicity and age of Americans who are discouraged, want a job, and working part time for economic reasons are similar to the “officially” unemployed. • Discouraged workers, those who want a job, and those who are working part time for economic reasons are more sensitive to changes in local economic cond s as measured by local real GSP. • This labor market slack is even present in local la markets that experienced the “best” or “strongest” recoveries. • The strength of a local labor market’s recovery is linked to the severity of its “Great Recession. Areas that had the most severe recessions are experiencing the weakest recoveries. Areas with the mildest recessions are experiencing the strongest recoveries.

The last eight years have been disastrous for many workers, and particularly so for those with low human capital or other forms of disadvantage. Although the Great Recession officially ended in 2009, the labor market has been very slow to recover. One explanation attributes the ongoing poor labor market outcomes of young and non-college workers to the combination of deficient aggregate labor demand and greater sensitivity of marginal workers to cyclical conditions. A second attributes the recent outcomes to structural changes in the labor market. These have importantly different policy implications: Cyclical explanations imply that the main challenge is to raise aggregate labor demand and that if this is done many of the patterns seen in the last several years will revert to their prior trends. Structural explanations, by contrast, suggest the recent experience is the “new normal,” absent policy responses to encourage more (or different) labor supply. This paper reviews recent data for evidence on the two explanations, focusing on wage trends as an indicator of the relative importance of labor supply and demand. I find little evidence of wage pressure in any quantitatively important labor markets before 2015. The most recent data is more mixed, but still suggests substantial ongoing slack.

The U.S. government subsidizes retirement saving through 401(k) plans with $61.4 billion in tax expenditures annually, but the question of whether these tax incentives are effective in increasing saving remains unanswered. Using longitudinal U.S. Social Security Administration data on tax-deferred earnings linked to the Survey of Income and Program Participation, the project examines whether the “catch-up provision,” which allows workers age 50 and over to contribute more to their 401(k) plans, has been effective in increasing earnings deferrals. The study finds that contributions increased by $818 more among age-50-plus individuals constrained by the 401(k) tax-deferral limits relative to similar workers just under age 50, suggesting that constrained individuals respond to tax incentives. For this group, the elasticity of retirement savings to the tax incentive is relatively high: a 1-percentage-point increase in the tax-deferred limit leads to a 0.2 percentage-point increase in 401(k) contributions. But barely 1 percent of lower-saving participants took advantage of catch-up contributions, suggesting that raising the 401(k) limit is not likely to be a broad-based solution to retirement saving shortfalls.

The relationship between income and the timing of fertility has long been of interest to economists and demographers. This relationship has been studied in the aggregate, including studies of changes in the timing of fertility with macroeconomic shocks, but little is known about the time pattern of earnings (both of the woman and her spouse) prior to the first birth. Using data on individuals? complete earnings histories and the year of first birth from the SIPP Synthetic Beta, I describe the relationship between own and spousal earnings and the timing of first birth. Since both theory and previous empirical work on the impact of macroeconomic shocks on birth timing indicate that there is likely to be heterogeneity by education, I focus on examining differences in the relationship between earnings and birth timing between less-educated and more-educated women.

There is broad agreement that earnings volatility for men fell during the 1980's and early 1990's and has been rising since then. However, little is known about earnings volatility for women. Importantly, given increases in the returns to education, the large increase in educational attainment for women, and the large increase in female labor force participation, there is reason to believe that trends in volatility for men and women could be quite different. We use an underutilized dataset, the SIPP Synthetic Beta and associated Gold Standard File, to trace trends in earnings volatility by educational attainment and gender over the last thirty-five years. The SIPP SSB is better suited to this task then any other dataset previously used to study earnings volatility in the U.S. because it links every individual in a SIPP panel to their complete administrative earnings histories both prospectively and retrospectively, resulting in both long panels and very large cross-sections. This allows us to disaggregate earnings volatility by subgroup in a way that was previously impossible.

Since 1979, the U.S. labor market has experienced a rise in wage inequality as wage gains concentrated among higher-wage workers. Average wages have stagnated while wages at the low-end of the distribution have fallen in real value. Within those years, however, lowwage workers have experienced two distinct trends. During the 1980s, low-wage workers experienced pronounced wage declines. By contrast, low-wage workers achieved significant wage gains by the end of the 1990s. Such changes in the U.S. labor market may have important consequences for the earnings trajectories of low-wage workers. Presumably, the decline in pay rates for low-to-average-wage workers during the 1980s would make it more difficult for low-wage workers to make meaningful advances in their earnings and increase the prevalence and length of low-wage careers. The reversal of this trend up through the late 1990s may have, conversely, supported a decline in the number and length of low-wage careers. This paper will focus on the question of whether these well-documented shifts in the U.S. wage distribution have impacted two key features?prevalence and duration?of low-wage careers using the SSB and associated Gold Standard files. These data uniquely links personlevel micro-data from a nationally representative SIPP household survey with administrative annual earnings data from the IRS spanning from 1978 to 2006. This paper also examines how these dimensions of low-wage careers vary by educational attainment, gender, and race.

The object of this paper is to show that the recent financial and economic crisis in Italy has very different impacts on men and women, according to their role in society. The paper proposes an analysis of the current economic crisis with a gender perspective. In order to do so, the impact of the crisis must be investigated by looking at both the productive as well as the social reproductive systems. The paper is composed of two parts, a theoretical and an empirical one. The theoretical part presents a framework integrating different dimensions useful for a gender analysis. The empirical part uses this theoretical framework to analyze the gender impacts of the crisis in Italy. A general conclusion drawn is that while men were hit harder by the crisis (due to the industrial and constructions sectors involved), women are more likely to be hit at a 'second moment' due to austerity fiscal policy. This crisis might slow down the long and difficult process towards more gender equality

Women’s empowerment and gender equality are posited as desired outcomes of postapartheid economic development by the South African state. However, the state’s framing of empowerment is grounded in productivist logic which gives primacy to economic growth, converting labor from human activity to an input into production and placing the employment relation at the core of ostensibly emancipatory politics. In South Africa productivist logic necessitated a postapartheid reconceptualization of wage work from “a condition of oppression, degradation, and precariousness into a prospect of inclusion and human dignity” (Barchiesi 2011: 2). In this discourse, empowerment and gender equality are thus thought to emerge only through (equal) access to wage work. Consequently, the state implemented market-oriented policies aimed at reducing labor market “distortions” like barriers to entry/mobility, sex discrimination, and poorly functioning credit markets. The state seeks to construct a freely functioning, real-world labor market in the image of the abstract labor market of economic models. However, structural inequalities that exist outside of the labor market gain materiality within the labor market, as they are reflected in wages but are not be mitigated by the elimination of supposed market distortions. Rather than combating structural inequalities, productivism, with a narrow focus on markets, seals off policy space, effectively eliminating prospects for social policies that could help address structural inequalities generated and maintained outside of the labor market proper. This foreclosing of policy space constrains the imaginations of policymakers but not of workers themselves, who express support for non-market-oriented policies.

Labor markets of European countries have experienced an apparent paradox in recent years: trade union membership and labor disputes have decreased# while at the same time# working conditions have deteriorated in the context of liberalizations and flexibilization. Economic research on these topics suffers from serious shortcomings as it ignores the institutional contexts and adopts isolated perspectives. We develop a broader framework# integrating the individual’s with an institutional perspective. We join Varieties of Capitalism# Welfare State Typologies and similar institutional approaches in order to understand the systemic scope of structural changes that European labor markets have been undergoing in recent decades. Against this background# we deploy social psychologist Albert Bandura’s Social Cognitive Theory in order to analyze the interplay of an individual’s understanding of the institutional environment and her beliefs about personal capacities. Our main argument is that in order for labor protest to occur# individuals must believe that there are structural reasons for precarious working conditions. However# we claim# neoliberal reforms have increasingly been accompanied by discourses about and beliefs in individualism# implying that the individual is responsible if her working conditions are precarious. Moreover# for protest to occur# individuals must believe that they possess the necessary capacities to carry out protest. However# they may suffer from self-devaluation when working under precarious conditions. We use data from the European Social Survey (ESS) for a comparative analysis of several countries with differing institutional contexts in order to test our theoretical analysis. The results are supportive of our argument.

According to Eurostat, 23% of the Greek population in 2013 was at risk of poverty, the highest such rate in the EU-28. I analyze how the Greek adjustment programs, and ensuing structural changes and overtaxation, accelerated the pauperization of the Greek population, and use individual-level data from the EU Social Inclusion and Living Conditions dataset to specifically examine the rise of food deprivation in Greece during the economic crisis. I show that food insecurity among the Greek population doubled in the period 2009-2012, but find significant differences in food insecurity along demographic and geographic lines. I subsequently examine the connection between food insecurity and indebtedness; as well as the role of formal and informal mechanisms, such as social transfers and family networks respectively, in helping Greek households cope with material deprivation. I conclude by discussing “food sovereignty” as an economic and political project to help Greece face food insecurity and its ongoing humanitarian crisis.

In the context of the prevailing abundance of diversity (biological, ethnic), the profound social inequalities, and the trends and attitudes of hegemonic forces in Latin America, a coherent process of environmental governance is proving difficult and environmental injustice is aggravated. Regardless of where one turns in the region, there is an increase in the number and intensity of conflicts between groups committed to promoting economic development (i.e., growth), and those claiming to speak for the planet and/or the welfare of the large majority of the population or particular minorities, who feel excluded from these processes and are bearing the brunt of the negative impacts of these activities. This paper gives voice to the actors actually involved in developing alternatives to the development proposals of the hegemonic forces driving the transformations in their societies. These alternatives emerge from groups whose organizations are shaped by different cosmologies, products of their multiple ethnic origins, and by the profound philosophic and epistemological debates of the past half-century that emerged from numerous social movements proposing different strategies for achieving progress, improving well-being and conserving ecosystems.

The debate over the Cobb–Douglas production function has been raging ever since the mathematician Charles Cobb teamed up in 1928 with the economist Paul Douglas and developed this famous model of aggregate production and distribution. This article presents a heretofore unpublished exchange in 1971 over the efficacy of the Cobb–Douglas by two future Nobel Laureates, Robert Solow and Herbert Simon. Solow emerges as the defender of the Cobb–Douglas, and Simon the engaging critic. The correspondence demonstrates that the logical and empirical problems with the Cobb–Douglas were well known by the most advanced minds of mainstream economics. This calls into question the rationale for its continued use as an empirical corroboration of marginal productivity theory.

This paper traces the concept of human capital from its various descriptions in the history of economic thought to its eventual integration into aggregate production functions. Using an extension of the proof by Anwar Shaikh in the Review of Economics and Statistics, this paper shows how these human capital-augmented production functions are entirely derivative of accounting identities. This paper uses simulated data to demonstrate this fact in practice and problematizes the social and political meaning of various parametrizations of human capital.

The classical economic tradition derives many economic patterns of capitalism without any reference to rational choice, utility maximizing or rational expectations. In this talk, I will show how the basic laws of microeconomics can be derived from perfectly sensible models of human behavior. This means that we do not have to rely on the standard (socially absurd) micro-foundations. The analysis can be extended to macroeconomics also. The material presented here is from a forthcoming book from Oxford University Press, December 2015.

In the face of a sustained recession, there is substantial disagreement about what, if anything, macroeconomic policy can do to create a more stable and prosperous society. This begs the question of why the economics profession fails to put forth a cogent policy framework. What explains our diminished ambition with respect to the theory of economic policy? Has mainstream macroeconomics undermined the belief in the ability of economists to make meaningful policy interventions? If so, does this imply that modern macroeconomics is founded in a belief in policy nihilism? Before we begin to entertain the question of policy nihilism, we must first consider if new classical economics, in superseding Keynesian policy activism, actually advanced the theory of economic policy. With this goal, this paper will focus on the contribution of Robert E. Lucas, Jr.’s influential 1976 paper, “Econometric Policy Evaluation: A Critique.” Reviewing a sample of papers that engage the Lucas critique (LC) will allow us to better assess if new classical economics is founded in a methodological rigorous, empirically valid, and theoretically sound framework. The papers under review cast a dark shadow of doubt upon Lucas’s central argument.

Abstract: Although sub-Saharan African countries have made impressive strides over the past decades towards improving health outcomes, they continue to lag behind other regions, in major part because of inadequate investments in the health sector. In particular, lack of access to safe sources of drinking water and modern sanitation is a key cause of ill health and high death rates, especially among women and children in rural areas and poor urban agglomerations. In this paper, we seek to explore two questions: 1) whether increased allocation of foreign aid to the water and sanitation sectors contributes to improved access to these services in sub-Saharan countries; 2) whether improved access to water and sanitation is associated with improvement in health outcomes in these countries. The paper is based on panel data from OECD/DAC that provides volumes of aid disbursements by sector, in conjunction with country-level data on access to water and sanitation and health outcomes. The analysis uses pooled cross-sectional and panel data estimation techniques controlling for country specific effects, potential outliers, and potential endogeneity of regressors. The results from this study may shed light on strategies to accelerate progress in reaching key development goals in the health sector in African countries and to improve aid effectiveness.

Abstract: This paper examines the link between income per capita, adult life expectancy and mortality rates for children. We construct an overlapping generations model and derive conditions under which the impact of income per capita on health outcomes is: (i) linear and positive; (ii) non-linear, positive and the marginal effect of income diminishes as income increases; and (iii) non-linear, positive and the marginal effect of income increases as income rises. We next estimate a dynamic panel model using panel data from 128 developing countries over the period 1994-2014. We find that: (i) Global factors (i.e., non country-specific factors) have a positive and significant impact on health outcomes, and this effect has increased over time; (ii) Countries in Sub-Saharan Africa (SSA) have a higher mortality rate and lower life expectancy than countries outside SSA; (iii) An increase in income per capita improves health outcomes and the effect is stronger at higher levels of income; and (iv) The effect of income per capita on health outcomes is different for SSA countries.

Abstract: One of the major reasons for low healthcare utilization rates in low-income counties is lack of affordable health insurance coverage. In recent years, Community-Based Health Insurance programs are widely implemented across developing countries to increase healthcare utilization of the poor. This study investigates the causal impact of Community Based Health Insurance schemes on utilization of healthcare services in Rwanda. In a Bayesian potential outcomes framework, we address issues of selection bias on observable and unobservable dimensions and heterogeneity in treatment effects by estimating treatment effects at the individual level. Using data from a nationally representative household survey, we find that the program significantly increases the likelihood of utilizing medical consultation and screening services but not the utilization of drug. We also find notable heterogeneity in the estimated treatment effects at the individual, intra-household, and area levels.

This study examines the impacts of improvements in delivery of credit from formal and semi-formal financial institutions to households in Ghana. My main interest is to exploit plausibly variations in access to credit from these institutions, due to the fact that before the passage of the new financial institution bills such as the Borrowers and Lenders Act, 2008 (Act 773) and the Non-Bank Financial Institutions Act, 2008 (Act 774) in 2008, households in the country could hardly borrow from the formal financial institutions. Particular attention is paid to a number of socioeconomic outcomes, including agriculture, non-farm businesses, and expenditure. This paper documents evidence of a decline in the share of households who have some informal borrowing, reduction in agricultural activities, and increases in non-farm business activities as well as increases in the number of non-farm business employees. This paper also find improvements in consumption, profits (both farm and non-farm activities) and loan repayments.

Abstract: With the introduction of the New National Policy on Education in 1981, plans were underway to overhaul the prior Nigerian education system. According to Fabunmi (1986) the previous education system was deemed archaic and there was need for a modern dynamic and progressive educational system. These plans gave birth to the 6-3-3-4 system. A system that allowed for six years in primary school, three years in Junior Secondary School (JSS), three years for Senior Secondary School (SSS) while the last four years are for tertiary education. Previously the country had a 6-5-4 system, which represents six years in primary school, five in secondary and four in tertiary. However, as there were debates on the inadequacy of the 6-5-4 system to prepare Nigerians to face whatever challenges, including employment problems, they may come across in future, the system was replaced. The move to the 6-3-3-4 system was not solely about increasing the time spent in secondary education but also a radical change in the subject structure of education in secondary school. Also at the tertiary level, a professional orientation was adopted with an aim to minimize unemployment and produce skilled labor in science and technology. The 6-3-3-4 system was setup to be different from the previous system in its goals and objectives. For example it was supposed to focus on \functional education" meaning an education that as noted in Uwaifo and Uddin (2009), allows those who pass through it function economically, intellectually, morally, politically and socially. Also, its main objective was to produce graduates who were more likely to be self-reliant, leading to a smooth school to work transition upon graduation. Despite the laudable objectives of the program, from its inception there were group who were opposed to it. By 2000 onwards, those opposed to the program increased rapidly and debates on the effectiveness of the system were at the core of this increased opposition. The diverse views of the program can be divided into two main ideas. One major view was that the 6-3-3-4 system if implemented correctly would yield success but in the Nigerian case had not been implemented properly. Those who hold this view further argue that despite the poor implementation, the 6-3-3-4 system better prepares students for success in the labor market compared to the prior system.

Food security has been the bane of African countries even though these countries are agrarian economies. On average, about 50% of the labor force in African countries are engaged in agriculture which accounts for about 30% of GDP generally in Africa. This suggests that productivity in agriculture is very low in African countries. Low productivity in the largest sector of African economies has not only left many Africans poor, it has left African countries food insecure. The issue of food insecurity in African countries was brought to the fore during the 2008 world food crisis when grain prices in African countries almost doubled. In spite of the fact that African countries are agrarian economies, the United Nations Food and Agricultural Organization (FAO) data indicate that Africa is the only region in the developing world where food production per capita decreased during the last two decades. Despite efforts to increase agricultural output, productivity continues to be low with the consequence that food security is not assured. As a result, African countries have come to rely on food aid to meet food short falls. In addition to food aid, Sub-Saharan African countries have been, and continue to be, the recipients of large amounts of agricultural aid—including inputs, technology, infrastructural support, policy advice and capacity building to increase agricultural productivity and improve food security. For example the U.S. government has promised about half a billion US$ to the Nigerian government in support of its agricultural transformation agenda (ATA), and the G-8’s New Alliance for Nutrition (located at the World Economic Forum) has promised large infusion of aid and private sector investment to improve agricultural productivity in African countries. In spite of this large aid flows to the agricultural sector, very few studies have been conducted to test the effectiveness of this aid flows—studies that will inform aid policy of both donors and recipients. This paper uses panel data from a large number of African countries to investigate the impact of agricultural aid on food security in recipient countries. Specifically, we investigate the effects of agricultural aid on agricultural productivity in African countries over the 1980–2012 period. Particularly, we investigate whether agricultural aid has significant positive impact on agricultural productivity and if so, which components of agricultural aid are effective in improving agricultural productivity. Controlling for several variables, we find that agricultural aid, especially the provision of improved seeds and capacity development improves agricultural productivity in African countries. On the other hand, the provision of mechanical aid does not significantly improve agricultural productivity in African countries, contrary to expectations. We also find regional differences in the effect of agricultural aid on agricultural productivity in Africa: the effects are highest in Southern Africa and lowest in West Africa.

We examine whether federally sponsored voluntary environmental programs have reduced phosphorus pollution from agriculture over the past 30 years. To test the effects of federal programs on water quality, we employ a unique dataset derived from daily observations on nutrient emissions taken over 37 years in several tributaries to Lake Erie. These data are linked to important ecological, hydrological, and economic factors that influence nutrient concentrations in agricultural watersheds. To identify the influence of federal programs on nutrient concentrations, we separate nutrient outputs into attached and soluble phosphorus, and we test for structural changes in key estimated parameters over time. For example, federal programs have long focused on trapping attached phosphorus in farm fields with conservation tillage and conservation set-asides. We show that these programs and their effects have strengthened over time. As expected, federal programs have had their 4 strongest impact on attached phosphorus during winter. In contrast, our model estimates an increasing trend in soluble phosphorus concentrations over time, which is surprising, given that the empirical evidence suggests that phosphorus inputs into our watersheds have decreased since the 1970s. We show that the seasonal pattern of concentrations has changed, with lower concentrations in summer and no change in winter. Given that most of the flow occurs in winter and spring, this suggests that federal programs have not reduced soluble phosphorus emissions, and consequently total phosphorus emissions.

Reductions in nitrogen and phosphorus from agricultural cropland are needed to reduce the size of the Gulf of Mexico hypoxic zone. Recent estimates put the annual costs of achieving the average 5,000 km2 size at $2.7 billion per year. In this work, we incorporate an additional objective of solution robustness, i.e., the mix and spatial location of agricultural conservation measures is cost-efficient (lies on the Pareto-front) under weather uncertainty. We employ a multi-objective evolutionary optimization algorithm which draws from historic weather conditions to formulate the hypoxia reduction objective, allowing us to select solutions which are more robust to the changing “fitness landscape” induced by weather variability. The solution from robust optimization that achieves, in expectation, the hypoxia policy goal, is estimated to cost about $2.5 billion per year (7.4% cost reduction from the previous estimate associated with using land retirement as one of conservation investment options). Given historic weather variability, the goal is achieved in 47% of the 5-year time windows. Ex-post variability analysis suggests that an investment of approximately $4.7 billion per year would lead to at least a 75% chance (based on Chebyshev’s Inequality) of attaining the hypoxia policy goal.

In a world free of transaction costs, reverse auctions can cost-effectively allocate payment for environmental service contracts by targeting projects that provide the most benefit per dollar spent. However, auctions only succeed if enough farmers choose to bid so that the auctioneer can evaluate numerous projects for targeted funding. A 2014 conservation auction to allocate payments for phosphorus reduction practices in NW Ohio experienced very thin bidding. According to a follow-up survey, auction participation was deterred by the complexity of the bidding process and the need to negotiate with renters. Due to low participation, the actual conservation auction made payments for phosphorus reduction that were surprisingly costly at the margin. Applying a farmer behavioral model to the Western Lake Erie Basin, we simulate participation choice and cost-effectiveness of environmental outcomes in reverse auctions and uniform payment conservation programs. Results reveal that when perceived transaction costs of bid preparation are high, reverse auctions are less cost-effective than spatially targeted, uniform payment programs that attract higher participation.

Despite the success of efforts to reduce phosphorus (P) pollution from point sources, P from non-point agricultural sources remains a vexing problem that recent EPA assessments suggest impair half the nation’s lakes and rivers. We synthesize the state of knowledge and identify critical research priorities in four key areas related to reducing P pollution: costs, ecology, benefits, and policies. Key to the P pollution puzzle is to understand why it happens? We assess evidence from the economics literature, including issues of risk, input elasticities, and market failures, and contrast this with the common environmental science assertion that farmers “over-apply” P. Next, we assess the state of knowledge on ecological production functions linking P from farms to largely adverse, but sometimes positive, effects on downstream ecosystem services, including a critical look at EPA’s focus on metrics of ecological and biological condition rather than on connections to ecosystem services. This understanding then points to shortcomings in the valuation literature that limit the utility of most valuations studies, including inadequate linkages to policy relevant environmental quality metrics affected by P pollution. Putting these threads together, we address the effectiveness of alternative policies for reducing P pollution, including some successes and many failures with approaches such as trading, taxes, payments for environmental services, other conservation policies, and the potential for “green” labeling or supply chain pressures. We conclude by assessing critically needed innovations in the four areas.

This study investigates whether and how Asian central banks responded to exchange rate movements, employing relatively recent data. Using Bayesian methods, we estimate a small open economy dynamic stochastic general equilibrium model for four emerging market inflation-targeting countries in Asia, namely Indonesia, the Philippines, South Korea, and Thailand. Comparing with the results during the pre-crisis period when the emerging market countries tried to cope with currency appreciation, we find that almost all of the central banks of these countries targeted exchange rate movements during the crisis less than before. In addition, we find that in spite of the crisis, most monetary authorities did not fully intervene in the foreign exchange market. The findings suggest that emerging market countries did not offset currency depreciation as much as appreciation. This implies that asymmetry existed in the exchange rate management of these countries.

This paper investigates the effect of liquidity shocks in China on the U.S. dollar exchange rate since 1996. The relative value of the U.S. dollar is important since it influences the debt burden of developing countries and impacts the tightness of global monetary policy. Under floating exchange rates, a monetary expansion results in depreciation of the domestic currency. However, the value of the Renminbi has either been tied to the U.S. dollar or been managed with reference to a basket of major currencies. Empirical results suggest that China’s liquidity expansion is associated with statistically significant decreases in the trade weighted values of the U.S. dollar and of the Japanese yen. A positive innovation in China’s M2 is associated with positive and statistically significant effects on oil and commodity prices. Shocks to China’s M2 have stronger impact on economic variables since about 2005, consistent with the growth of China’s economy.

This paper investigates a perception in the political debates as to what extent poor countries are affected by price movements in the global commodity markets. To test this perception, we use the case of India to establish in a standard SVAR model that global food prices influence aggregate prices and food prices in India. To further analyse these empirical results, we specify a small open economy New-Keynesian model including oil and food prices and estimate it using observed data over the period 1996Q2 to 2013Q2 by applying Bayesian estimation techniques. The results suggest that big part of the variation in inflation in India is due to cost-push shocks and, mainly during the years 2008 and 2010, also to global food price shocks, after having controlled for exogenous rainfall shocks. We conclude that the inflationary supply shocks (cost-push, oil price, domestic food price and global food price shocks) are important contributors to inflation in India. Since the monetary authority responds to these supply shocks with a higher interest rate which tends to slow growth, this raises concerns about how such output losses can be prevented by reducing exposure to commodity price shocks and thereby achieve higher growth.

This paper analyzes a desirable transition path for East Asian countries given the People’s Republic of China’s (PRC’s) transition to a new exchange rate regime. It attempts to answer two main questions: (i) Would these countries be better off shifting to either a basket peg or a floating regime following the PRC’s transition to a basket peg regime? (ii) How and when should these countries shift to the desired regime? The paper captures the influence of the PRC’s predetermined shift in its exchange rate regime on East Asian countries’ decisions regarding their optimal transition policies based on a dynamic stochastic general equilibrium (DSGE) model of a small open economy. Our calibration exercise using Malaysian and Singapore data from the first quarter (Q1) of 2000 to Q4 2012 reveals that a gradual adjustment to a basket peg is the most desirable policy for both countries. A sudden shift to a basket peg is superior to maintaining a dollar peg in Malaysia, but not in Singapore. Finally, a sudden shift to a floating regime is even worse than maintaining a dollar peg in both countries.

Current estimates of tipping points in the literature suggest that racial progress in the US has been slow. According to these estimates, the mean tipping point of US cities increased from 12% in 1970 to 14% in 1990, an average of 1 percentage point per decade (Card et. al 2008). In this paper, I develop a new method for estimating tipping points which exploits the with-in city sorting of households to estimate tipping points at a finer level of geography – the census tract. These new results paint a more optimistic picture of racial progress in the US. According to these estimates, from 1970 to 2010, the mean tract-level tipping point in the US has increased from 15% to 42%. To compare these results to the literature, I aggregate my tract tipping points to the city level and find that the mean MSA tipping points also increase from 13% to 35%, an average growth rate of 5 percentage points per decade. I show that prior estimates understated city tipping points because they reflected the average tipping points of marginal census tracts in the city, i.e. those that were close to tipping, whereas my estimates are an average of the tipping points of both the marginal and inframarginal census tracts in a city.

Prescription drug abuse is America’s fastest-growing drug problem, with overdose deaths from opioid pain relievers increasing by 313% from 1999 to 2010. This paper estimates the effect of supply-side interventions on prescription drug availability, abuse, public health, and crime. The study is based in Florida, the epicenter of the prescription drug abuse epidemic in the late-2000s, where physicians prescribing and dispensing oxycodone from pain clinics were the main source of drug diversion. In mid-2010, government officials initiated a sweeping crackdown on Florida’s pain clinic suppliers, reducing the number of pain clinic licenses by 59%. Using novel online and administrative data and exploiting the timing and geographic location of the crackdown, I find that enforced regulation of pharmaceuticals’ legal supply chain can reduce prescription drug abuse substantially and sustainably. Between 2008-12, oxycodone street prices increased by 238% and average supply decreased by 59%. In turn, indicators of oxycodone consumption decreased significantly. There is no evidence of an oxycodone price, supply, or consumption recovery. There is substitution to heroin, but this offsetting effect is small relative to substantial public health gains from decreases in oxycodone deaths and hospitalizations. In addition, there is weak evidence of a decrease in drug arrests and index crimes.

This paper examines the importance of trade-induced managerial incentives as a source of productivity gains. I introduce a principal-agent problem in a trade model with monopolistic competition and firm level heterogeneity, in which firms provide incentives to their managers to reduce costs. The model shows that trade liberalization, given by a reduction in trade costs, induces stronger managerial incentives among firms productive enough to export and weaker incentives for firms not productive enough to export. Among the exporters, the increase in incentives is higher for low-productive exporters than high-productive exporters. Examination of U.S. manufacturing firms yields evidence consistent with the model. I find that between 5% and 8% of the industry productivity growth during the 1993-1998 period can be attributed to productivity gains through managerial incentives.

In February 2012, New York City released value added scores for its grade 4 through 8 public school teachers. There was little concern about the potential impact of the release of this public information on the housing values, residential segregation or school segregation for New York City dwellers. Since people “vote with their feet” (Tiebout, 1956), it is logical to believe that public information on teacher quality measures influences housing price, and resident and student mobility. Hedonic, fixed effects models were used to analyze the teacher quality, school report card, residential housing sales, and American Community Survey data. The housing market responds significantly to the new information provided by the release of the teacher quality information. The results also suggest that the highly debated release of teacher quality information has large implications on housing choices and an impact on school demographics. The results provide the first evidence of the effects of teacher quality scores on New York City’s housing market. An increase in teacher quality increases housing prices and this influences the demographics of neighborhoods and schools. The release of the data had some impact on increasing the average household income and educational levels in less affluent and less educated neighborhoods. The results also indicate that homebuyers are responding to the data release are predominately White and are displacing Hispanic and Black residents.

While religiosity is positively correlated with self-reported prosociality, observational and experimental studies on the long-hypothesized connection between religion and prosocial behavior have yielded mixed results. Recent work highlights the role of religious salience for stimulating prosocial behavior, but much of this research has relied on priming Christian subjects in laboratory settings, limiting generalization to the real world. Here I present a field study conducted in the Medina of Marrakesh, Morocco, which shows that religious salience can increase prosocial behavior with Muslim subjects in a natural setting. In an economic decision making task similar to a dictator game, shopkeepers demonstrated increased prosocial behavior when the Islamic call to prayer was audible compared to when it was not audible. This finding complements a growing literature on the connection between cultural cues, religious practices, and prosocial behavior, and supports the hypothesis that religious rituals play a role in galvanizing prosocial behavior.

Abstract: Objectives: Recent investigations have uncovered large, consistent deviations from the predictions of Homo economicus that individuals are entirely self-regarding. Our study undertook a cross-cultural study of behavior search for the evidences of other-regarding behaviors and its ethnic difference, and accounted for by anatomy of culture. Method: This study recruited 90 subjects of three ethnic groups from market trade-based (ethnic Han), nomadism-based (ethnic Zang) and agriculture-based (ethnic Bouyei) areas in China and conducted public good provision experiment with stranger-treatment design. Results: Under the assumption of self-regarding preferences, the Nash equilibrium is zero contribution by all in public account using backward induction. However, we found contributions did not reduce to zero over all three sessions. Besides, the differences in contributions between ethnicities strongly depended on the degree of ethnic dominance, and Zang harbored the strongest reciprocal preference generally over all group structures. A particular set of measurable factors was identified as proxies for cultural influences on behavioral differences observed in experiments between ethnicities. The results showed all of the cultural factors accounted for the behavioral differences between the ethnic Han and the other two minor ethnicities. However, behavioral difference between minor ethnicities was attributed to group structure only. Conclusions: (1) People may harbor various forms of prosocial emotions in economic affairs, and especially exhibit stronger at the initial phase rather than what canonical model assumes. (2) Behavioral differences between ethnicities are prominent and can be explained by differences in cultural influence.

We report data from a field experiment aimed at determining the extent of both in-group favoritism and out-group discrimination, known as parochial altruism, within a multiethnic society, Ecuador. The main ethnic groups studied were: mestizos, indigenous, montubios, and african-ecuadorians. We worked with standard subject, college students (116), and non-standard subjects, villagers (110). We took the experimenter and the students out into the field. Participants played an ultimatum game twice under an in-group and an out-group condition. The second time the game was played we switched the roles of the players. We do not find a systematic evidence for in-group favoritism and out-group discrimination across groups. However, for values above the fair division, students favor their own groups more than villagers do. Villagers present more hyper-fair or confused profile preferences compared to students, while the latter are more monotonically rational.

This paper examines the causal relationship between culture and income inequality in a cross-country analysis. The four original dimensions of national culture developed by Hofstede (1980, 2001) are used to explore the effect of culture on the income inequality in a country. Our Instrumental Variable analysis suggests that the people in countries with large power distance and high collectivism tend to tolerate more income inequality than people from individualistic and small power distance countries. Our analysis failed to establish any causal link between income inequality and uncertainty avoidance and masculinity.

Many major government programs transfer resources to older people and implicitly or explicitly tax their labor. In this paper, we shed new light on the labor-supply effects of such programs by investigating the Old Age Assistance Program (OAA), a means-tested and state-administered pension program created by the Social Security Act of 1935. Using newly available Census data on the entire US population in 1940, we exploit the large differences in OAA programs across states and the rules that governed eligibility for OAA within states to estimate the labor supply effects of OAA. Our estimates imply that OAA reduced the labor force participation rate among men aged 65-74 by 5.7 percentage points, relative to a base of roughly 50 percent. Estimating a standard model of labor supply, we find that the majority of the OAA-induced reduction in late-life labor supply was due to income effects, despite the high implicit tax rates imposed by OAA's earnings tests. Our results suggest that OAA and Social Security could account for a significant share of the large reduction in late-life work during the mid-20th century.

We study the effect of wealth on individual and household labor supply using administrative data for approximately 3 million lottery players in Sweden. We find that winning a lottery prize modestly reduces labor earnings, with roughly 10 percent of the prize spent reducing earnings over the first 10 years. Earnings reductions are fairly similar by age and gender, but increase with pre-win earnings levels. We show that a calibrated dynamic labor supply model can account for our results both over the life cycle and across the earnings distribution, and we use the model to estimate key labor supply elasticities. Lastly, we find much larger earnings responses for winners than for their spouses, regardless of the gender of the winner; this is inconsistent with unitary household labor supply models which pool exogenous unearned income.

This paper presents new evidence on the effects of retirement benefits on labor force participation decisions. The analysis is based on a mandated rule for employer-provided retirement benefits in Austria that creates discontinuities in the incentives for workers to delay retirement. We present graphical evidence on labor supply responses and present a conceptual framework that accounts for frictions and for the dynamic incentive structure. Using bunching methods we estimate a semi-elasticity of participation which ranges from 0.1 to 0.3 and is highest for incentives targeted at a delay in retirement by 6 to 9 months.

We estimate the effect of Social Security benefits on earnings by examining the Social Security “Notch,” which cut Old Age and Survivors Insurance (OASI) benefits by over $500 per year on average for individuals in the 1917 birth cohort relative to the 1916 cohort. This led to sharply different benefits for similar individuals born one day apart. Using Social Security Administration microdata on earnings in the full U.S. population by day of birth, we document a very large, visually clear, and statistically significant increase in elderly earnings when moving from the end of the 1916 cohort to the beginning of the 1917 cohort. The evidence suggests that the effect of OASI benefits on earnings is driven primarily by an income effect, and we are able to rule out more than a modest substitution elasticity. Our results suggest that the slowdown in the growth rate of mean OASI benefits in the mid-1980s can account for a substantial fraction of the sharp increase in the yearly growth of the elderly employment rate around this time.

This paper introduces the Vanguard Research Initiative (VRI), a new panel survey of wealthholders designed to yield high-quality measurements of a large sample of older Americans who arrive at retirement with significant financial assets. The VRI links survey data with a variety of administrative data from Vanguard. The survey features an account-by-account approach to asset measurement and a real-time feedback and correction mechanism that are shown to be highly successful in eliciting accurate measures of wealth. Specifically, the VRI data reflect unbiased and precise estimates of wealth when compared to administrative account data. The VRI sample has characteristics similar to populations meeting analogous wealth and Internet access eligibility conditions in the Health and Retirement Study (HRS) and Survey of Consumer Finances (SCF). To illustrate the value of the VRI, the paper shows that the relationship between wealth and expected retirement date is very different in the VRI than in the HRS and SCF— mainly because those surveys have so few observations where wealth levels are high enough to finance substantial consumption during retirement.

Recent evidence suggests that labor earnings reported in household surveys compare favorably with labor earnings in administrative records. On the other hand, imputed labor earnings in household surveys seem to match labor earnings in administrative records less closely. This finding has led many researchers to question the reliability of imputed labor earnings and to exclude these observations from wage analyses. However, this strategy might result in sample selection bias if labor earnings are not missing at random. In this paper, we compare reported and imputed labor earnings from the 2008 and 2014 panels of the Survey of Income and Program Participation (SIPP) to labor earnings from the Social Security Administration’s Detailed Earnings Record. We examine how the relationship between survey data and administrative records varies across demographic groups. Finally, we characterize survey non-respondents in order to improve our understanding of whether and how individuals select out of response on observable dimensions.

Measures of U.S. earnings (and income) inequality rely heavily on the Current Population Survey Annual Social and Economic Supplement (ASEC). A substantial and increasing share of individuals and households surveyed in the CPS either do not participate in the ASEC supplement, or participate but fail to report earnings. Imputation procedures assume that nonresponse is missing at random, conditional on measured covariates (MAR). Yet little is known how deviations from MAR affect inequality measures. We explore how nonresponse bias affects measures of the level and trends in earnings inequality using ASEC data for calendar years 1997-2010 matched to Social Security Detailed Earnings administrative tax records (DER). We find that nonresponse bias causes inequality to be understated, with ASEC earnings responses including too few low earners and too few very high earners. Census hot-deck imputations for nonrespondents do not fully correct the bias. Earnings shares among the top 1% of earners are lower by at least 20 percent in the ASEC compared to matched administrative tax records, with about half accounted for nonresponse and half to topcoding in the ASEC. Hybrid measures using ASEC earnings for CPS respondents and administrative DER earnings for nonrespondents produce intermediate estimates.

The Current Population Survey Annual Social and Economic Supplement (CPS ASEC) serves as the data source for official income, poverty, and inequality statistics in the United States. The Census Bureau has used a “hot deck” procedure to impute missing income values since 1962. This paper implements an alternative imputation methodology, sequential regression multiple imputation (SRMI), to impute missing income values in the CPS ASEC. SRMI is a model-based approach to imputation. It offers several potential advantages over the hot deck, including 1) greater flexibility to add additional covariates and 2) using multiple imputation to account for uncertainty in the imputation process. We implement a baseline SRMI with data from the CPS ASEC and then augment this with tax records on earnings from the Social Security Detailed Earnings Records (DER) file. We compare imputed income values from SRMI to those from the hot deck procedure along several dimensions including the mean, median, variance, and common official statistics derived from income (poverty and inequality).

We study optimal interest-rate policy in a New Keynesian model in which the economy is at risk of experiencing a financial crisis and the probability of a crisis depends on credit conditions. The optimal adjustment to interest rates in response to credit conditions is (very) small when the model is calibrated to match an estimated historical relationship between credit conditions, output, inflation and the likelihood of financial crises. Given the imprecise estimates of a number of key parameters, we also study optimal policy taking parameter uncertainty into account. We find that both Bayesian and robust-control central banks will respond more aggressively to financial stability risks when the probability and severity of financial crises are uncertain.

This paper investigates the drivers of systemic risk and contagion among European banks. First, we use copulas to estimate the systemic risk contribution and systemic risk sensitivity based on CDS spreads of European banks from Jan 2005 to Dec 2014. We then run panel regressions for our systemic risk measures using idiosyncratic bank characteristics and country control variables. Our results comprise highly significant drivers of systemic risk in the European banking sector and have important implications for bank regulation. We argue that banks which receive state aid and have risky loan portfolios as well as low amounts of available liquid funds contribute most to systemic risk whereas relatively poorly equity equipped banks, mainly engaged in traditional commercial banking with strong ties to the local private sector, headquartered in highly indebted countries are mostly affected by systemic risk.

What began as a financial crisis in the United States in 2007-2008 quickly evolved into a massive crisis of the global real economy. We investigate the importance of the bank lending and firm borrowing channel in the international transmission of bank distress to the real economy—in particular, to real investment and labor employment by nonfinancial firms. We analyze whether and to what extent firms are able to compensate for the shortage in loan supply by switching banks and by using other types of financing. The analysis is based on a unique matched data set for Germany that contains firm-level financial statements for the 2004-2010 period together with the financial statements of each firm's relationship bank(s). We use instrumental variable estimations in first differences to eliminate firm- and bank-specific effects. The first stage results show that banks that suffered losses due to proprietary trading activities at the onset of the financial crisis reduced their lending more strongly than non-affected banks. In the second stage, we find that firms whose relationship banks reduce credit supply downsize their real investment and labor employment significantly. This effect is larger for firms that are unable to provide much collateral. We document that firms partially offset reduced credit supply by establishing new bank relationships, using internal funds, and issuing new equity.

This paper analyzes the impact of international banking flows on domestic credit booms and examines the drivers of the composition of banking flows by type of borrower: banking sector and non-banking sector. First, using a panel of 80 countries from 1980 to 2012, I find that international bank flows to the banking sector increase the probability of credit booms, while flows to the non-banking sector do not. Second, the paper shows that the composition of these flows is partly driven by the monitoring effort of the international bank lender. Using a partial equilibrium CAPM model, I find that, since monitoring is costly, international banks find it optimal to place more funds on the sector that requires less monitoring. I test this theoretical result and show that countries with mechanisms in place to make their banking sector less likely to fail - such as government guarantees, fiscal capacity to execute them and high institutional quality - attract more international bank funds to their banking sector. Thus, mechanisms to make the banking sector safer should be properly designed to reduce the distortions they may generate on the lending behavior of international banks.

Abstract We develop a theory of endogenous uncertainty where the ability of investors to learn about firm-level fundamentals declines during financial crises. At the same time, higher uncertainty reinforces financial distress of firms, giving rise to “belief traps”---a persistent cycle of uncertainty, pessimistic expectations, and financial constraints, through which a temporary shortage of funds can develop into a long-lasting funding problem for firms. At the macro-level, belief traps provide a rationale for the long-lasting recessions that typically entail financial crises. In our model, financial crises are characterized by high levels of credit misallocation, an increased cross-sectional dispersion of growth rates, endogenously increased pessimism, uncertainty and disagreement among investors, highly volatile asset prices, and high risk premia. A calibration of our model to U.S. micro data on investor beliefs matches the slow recovery after the 08/09 crisis quite well.

Emerging markets exhibit high returns to capital, the ‘Lucas Paradox,’ alongside volatile growth rate regimes. We investigate the role of long-run risks, i.e., risk due to fluctuations in economic growth rates, in leading to return differentials across countries. We take the perspective of a US investor and outline an empirical strategy to identify risky growth shocks and quantify their implications. Long-run risks account for 60-70% of the observed return disparity between the US and a group of the poorest countries. At the individual country level, our model predicts average returns that are highly correlated with those in the data (0.61).

We study the variation in upward mobility for low-income boys and girls in the U.S. While overall patterns are similar for boys and girls, the variation in upward mobility for low-income boys is larger than for low-income girls. In particular, there is a notably thicker lower tail for boys in some counties such as Baltimore. We document the correlations of these patterns with a range of factors. Places with more residential segregation, more income inequality, and fewer two-parent households have particularly low rates of upward mobility for low-income boys.

U.S. females graduate high school and complete college at higher rates than U.S. males, but the female-male educational advantage is far larger among black and low-SES students than among white and high-SES students. We explore why the female advantage in educational attainment is systematically larger among minority and low-SES households, focusing on three hypotheses: boys are differentially sensitive to family disadvantage (what we term the 'Fragile-Y' effect), so that given variation in family disadvantage generates greater dispersion in behavioral and academic outcomes among boys than girls; girls in disadvantaged families receive larger family investments than boys; and girls born to disadvantaged families have superior health at birth relative to boys. We distinguish these mechanisms by exploiting a unique matched database of birth certificate, and academic, disciplinary, and high school graduation records for over one million children born in Florida between 1994 and 2002. To account for unobserved heterogeneity across families, we contrast outcomes of opposite-sex siblings linked by public school records to the same mother. Relative to their sisters, boys born to low-education and unmarried mothers, raised in low-income neighborhoods, and enrolled at poor-quality public schools, have a higher incidence of truancy and behavioral problems throughout elementary and middle school, perform worse on standardized tests, and are less likely to graduate high school. These findings are strongly supportive of the differential sensitivity and differential investment hypotheses. By contrast, family structure and neighborhood attributes have no measurable relationship to the sibling gender gap in birth outcomes, including birthweight, APGAR scores, prenatal care adequacy, and maternal health, suggesting that post-natal rather than pre-natal factors cause the gender-SES gradient in behavioral and educational outcomes. A surprising implication of these findings is that relative to white siblings, black boys fare worse than their sisters in substantial part because black children---both boys and girls---are raised in more disadvantaged family environments.

A new gender gap has emerged in many societies: males lag behind in terms of educational outcomes. In a largely representative sample of Norwegian adolescents, we examine why males make different school choices than females and why they are more likely to drop out of high school. We construct a data set combining a lab experiment with high quality register data, to study how family background influences educational outcomes. In particular, we study how family background influences non-cognitive skills as well as risk, time and competitiveness preferences that are critical for the educational outcomes.

Consider a strategic environment where we fix some initial information structure for the players. Suppose that a sender wants to give the players additional information in order to influence players’ choices. We have shown in earlier work the set of outcomes that can be induced corresponds to the set of Bayes correlated equilibria of the underlying game. Thus we provide an approach for studying a many receiver version of “Bayesian Persuasion” by Kamenica and Gentzkow (2011) where receivers have prior information. We illustrate the approach (and relate it to our prior work) by (i) analyzing a stylized model of bank runs and (ii) games of strategic substitutes and complements. We show that the best information design in games with strategic substitutes requires the agents to receive private and idiosyncratic information, whereas in games with strategic complements the socially optimal information requires public and common information. We highlight the importance of different assumptions about what the sender knows about the receivers’ prior information.

Certified experts play crucial roles in the modern economy, providing people with professional opinions to mitigate information asymmetries. Credit rating agencies (CRAs) provide a leading example, generating large controversy for possibly contributing to the 2007-2009 financial crisis. Many questions surround CRAs. Why do investors rely on credit ratings to make investment decisions, even though they understand that credit ratings may be inflated? How do CRAs affect the real economy, and how should they be regulated? We develop a model in which an informed CRA publishes credit ratings to persuade creditors to roll over short-term debt. Observing the credit rating, creditors with heterogeneous private information about a firm’s liquidity management ability simultaneously make rollover decisions. Creditors’ behavior affects the firm’s financial cost and thus its investment choice, which determines the CRA’s credit ratings. In the unique equilibrium, credit ratings are commonly known to be inflated, but still provide positive signals. Because the CRA never wants to be caught lying, and the firm’s early default choice is verifiable, a strong credit rating implies that the firm’s fundamentals are not extremely bad. The inflated ratings may either hurt or improve overall welfare. The inflated credit rating, together with creditors’ dispersed beliefs and strategic complementarities, reduce the firm’s financial cost, helping to avoid an inefficient run but also incentivizing the firm to gamble for resurrection. The model predicts that rating inflation increases when firms are more opaque, when upside returns from risky projects are higher, and when fewer creditors encounter liquidity shocks. We analyze two potential policies aiming to regulate CRAs: one involves verifying firms’ investment choices and the other involves stress tests. Both policies can mitigate the adverse effects of CRAs. One operates via pressuring the CRAs to provide more accurate information, and the other one operates through weakening the CRAs’ informational role.

I consider dynamic, multi-agent persuasion mechanisms. The agents are depositors at a bank which is at risk of default. The bank releases public and private information to the agents over time in order to prevent them from coordinating a run on deposits. In such an environment information disclosures control not just the agents beliefs about the underlying state (here the health of the bank) but also their higher-order beliefs. A depositors incentive to withdraw is determined not just by the likelihood of default, but also the likelihood that the other depositor is already running. Thus, in addition to managing the depositors pessimism about default, the bank will try to manage each depositors beliefs about the others pessimism. I analyze this problem and show how the bank optimally uses private and minimally correlated disclosures to achieve this. In the two agent case there exists a mechanism which is optimal in a strong sense: the (random) time at which each agent withdraws as well as the time at which the last agent withdraws rst-order stochastically dominate all other feasible mechanisms. With more than two agents however there is a trade-off and the optimal mechanism depends on the bank's payoffs as a function of the number of withdrawing depositors. I characterize the maximal delay before a bank run as the number of agents tends to innity and as a function of the degree of strategic complementarity. When strategic complementarity is weak the delay approaches innity asymptotically.

Abstract Rothschild and Stiglitz (1970) introduce a way to represent random variables as convex functions (integrals of the cumulative distribution function). Combining their result with Blackwell's Theorem (1953), we characterize the set of distributions of posterior means that can be induced by a signal. This characterization provides a novel way to analyze a class of Bayesian persuasion problems

While researchers have collected rich data on career and family outcomes for individuals with various levels of human capital, relatively little research has studied individual perceptions of how they believe human capital would affect their future. These perceptions, not realized actual outcomes, are the key to understanding human capital investments. This paper studies how individuals believe human capital investments would affect their future career outcomes and family life. We use a survey to elicit the beliefs of a high ability sample of currently enrolled college students. The survey includes rich information on student beliefs about future earnings, labor supply, marriage, spousal characteristics, and fertility, all conditional on college major choice and college completion. We find that students believe that there are not only large differences in earnings across potential human capital investments, but also they believe there are large differences in non-pecuniary aspects of human capital as well, including consequences for labor supply, marriage, types of spouses, and the timing and number of children.

This paper investigates the determinants of college attrition in a setting where individuals have imperfect information about their schooling ability and labor market productivity. We estimate a dynamic structural model of schooling and work decisions, where high school graduates choose a bundle of education and work combinations. We take into account the heterogeneity in schooling investments by distinguishing between two- and four-year colleges and graduate school, as well as science and non-science majors for four-year colleges. Individuals may also choose whether to work full-time, part-time, or not at all. A key feature of our approach is to account for correlated learning through college grades and wages, thus implying that individuals may leave or re-enter college as a result of the arrival of new information on their ability and productivity. We use our results to quantify the importance of informational frictions in explaining the observed school-to-work transitions and to examine sorting patterns.

In this paper we present the results of a large scale evaluation of an information/persuasive social marketing campaign. This policy implementation and evaluation was conducted in conjunction with the government of the Dominican Republic and had the objective of lowering high school dropout rates. The evaluation includes 25% of all public schools with middle school students and provides information on the returns to education, the availability of financial aid and also contain non informative persuasive content. The information was provided through a series of four 20min videos with a telenovela format that include info graphic segments and are shown in school to students in 7th and 8th grade. We develop the videos so that we can differentiate a treatment that has no statistical facts at all but is otherwise identical to an informative series of videos that include info graphic information on earnings. We use a baseline and follow up survey covering 40,000 students to measure how self reported beliefs change regarding expected returns for self vs the population, beliefs regarding the feasibility of different options and more generally how students educational plans change with the treatment. In addition we develop an interactive survey application that explains the statistical concepts that are then asked in a repeated panel form as in Wiswall and Zafar (2015). This allows us to elicit detailed information about expectations and model the different mechanisms through which this policy affects outcomes. In particular we differentiate between salience of options, updating regarding the dispersion of earnings, updating regarding the conditional distribution of earnings given education and the change in feasibility or availability of options.

How important is mastering information and communication technologies (ICT) in modern labor markets? We present the first evidence on this question, drawing on unique data that provide internationally comparable information on ICT skills in 19 countries. Our identification strategy relies on the idea that Internet access is important in the formation of ICT skills, and we implement instrumental-variable models that leverage exogenous variation in Internet availability across countries and across German municipalities. ICT skills are substantially rewarded in the labor market: returns are at 8 percent for a one-standard-deviation increase in ICT skills in the international analysis and are almost twice as large in Germany. Placebo estimations show that exogenous Internet availability cannot explain numeracy or literacy skills, suggesting that our identifying variation is independent of a person’s general ability. Our results further suggest that the proliferation of computers complements workers in executing abstract tasks that require ICT skills.

This paper investigates how the increasing labor supply of fresh graduates with modern IT (information technology) skills impacts the careers of incumbent workers during periods of fundamental technological change. To identify the causal effect within a difference-in-difference framework, we exploit a regulatory change in a mandatory German apprenticeship training regulation that obligated fresh graduates of a large manufacturing occupation to acquire modern IT skills. By analyzing the careers of incumbent workers who graduated shortly before the mandatory change in the training regulation occurred, we can investigate how incumbent workers respond to the increasing supply of modern-skilled fresh graduates. We separate the causal effect from differences in unobserved ability, unrelated institutional changes, and macroeconomic developments by using a difference-in-differences approach. Thus we compare wage trajectories of incumbent workers in the affected occupation to wage trajectories of incumbent workers of a comparable occupation, which was not affected by a similar regulatory change in their training occupation. As workers of both occupations learned and work in the same firms, have otherwise similar training contents, general schooling requirements, produce similar goods, and are represented by the same unions, both groups are exposed to exactly the same labor market institutions and macroeconomic conditions. The paper shows that fresh graduates with modern IT skills crowd incumbent workers out of their jobs and occupations. As a result, even young incumbent workers, who lack modern IT skills, experience long-lasting earnings reductions. The earnings effects prevail for more than 20 years and incumbent workers are more likely to leave their occupation or to become unemployed. In contrast to most prior studies on skill-biased technological change, which relate the timing of important technological innovations and relative changes in the level of skills to macroeconomic trends in wage inequality, this paper contributes to the literature by providing micro-evidence based on a quasi-experimental setting.

Economic theory suggests that agents care for the outcomes they produce. This paper studies the conditions under which a pro-social mission of a job affects workers’ motivation to perform well. In particular, we investigate whether it makes a difference if workers actively decide upon doing a mission-oriented job or are exogenously assigned. We find that a pro-social mission itself affects only a small group of workers in a positive way whereas self-selection into a mission-oriented job leads to a highly significant overall performance boost.

This paper investigates the transferability of human capital across countries and the contribution of imperfect human capital portability to the explanation of the immigrant-native wage gap. The majority of the existing studies on the wage assimilation of immigrants treat education and labor market experience obtained in different countries as perfect substitutes. Only a few studies allow the returns to human capital to vary not only for immigrants and natives, but also according to where the human capital was obtained. Therefore, we investigate whether human capital accumulated in different countries is rewarded differently in the German labor market - an aspect that hitherto has not been dealt with. Using panel data from the German Socio-Economic Panel (SOEP), we are able to approximate the years of education and labor market experience undertaken abroad and in Germany in order to analyze this issue. While most of the earlier studies only consider male immigrants, we also carry out the analysis for females. Given the immigration history of Germany, we examine immigrants by region of origin, arrival cohort and whether they consider themselves as temporary or permanent migrants. Our results reveal that, overall, education and in particular labor market experience accumulated in the home countries of the immigrants receive significantly lower returns than human capital obtained in Germany. We further find evidence for heterogeneity in the returns to human capital of immigrants across countries. Finally, imperfect human capital transferability appears to be a major factor in explaining the wage differential between natives and immigrants. Our results remain stable for various robustness checks, as for instance the inclusion of part- and fulltime workers or a Heckman selection procedure in order to account for the selective labor market supply of women.

We develop a model of monetary policy with two key features: (i) the central bank has private information about its long-run target for the policy rate; and (ii) the central bank is averse to bond-market volatility. In this setting, discretionary monetary policy is gradualist, or inertial, in the sense that the central bank only adjusts the policy rate slowly in response to changes in its privately-observed target. Such gradualism reflects an attempt to not spook the bond market, but this effort ends up being thwarted in equilibrium, as long-term rates rationally react more to a given move in short rates when the central bank moves more gradually. The same desire to mitigate bond-market volatility can lead the central bank to lower short rates sharply when publicly-observed term premiums rise. In both cases, there is a time-consistency problem, and society would be better off appointing a central banker who cares less about the bond market. We also discuss the implications of our model for forward guidance once the economy is away from the zero lower bound.

We propose and test a new channel for the transmission of monetary policy. We show that when the Fed funds rate increases, banks widen the interest spreads they charge on deposits, and deposits flow out of the banking system. We present a model in which imperfect competition among banks gives rise to these relationships. An increase in the nominal interest rate increases banks' market power, inducing them to increase deposit spreads and hence restrict deposit supply. Households respond to the increase in deposit prices by substituting from deposits into less liquid, but higher-yielding assets. Using branch-level data on the universe of U.S. banks, we show that following an increase in the Fed funds rate, deposit spreads increase by more, and supply falls more, in areas with less deposit competition. We control for changes in banks' lending opportunities by comparing branches of the same bank in the same state. We control for changes in macroeconomic conditions by showing that deposit spreads widen immediately after a rate change and even if this change is fully anticipated. Our results imply that monetary policy has a significant impact on how the financial system is funded, on the quantity of safe and liquid assets it produces, and on its provision of loans to the real economy

We study how compositional effects in the financial sector drive the dynamics of aggregate risk-taking and lead to novel effects of financial policy interventions. When financial market participants differ in their risk-taking, good shock realizations increase the capital of high-risk investors more than that of low-risk investors. This raises the fraction of wealth controlled by risk-takers in the population and, under incomplete markets, increases aggregate risk-taking. The opposite conclusions apply for bad shocks. As a result, aggregate risk-taking is pro-cyclical, capturing Minsky's financial instability hypothesis that "booms sow the seeds of the next crisis." Public policy interventions (like financial regulation, bailouts, etc.) work primarily by affecting the composition of the financial sector, in contrast to the static restriction on choice sets that is the focus of most conventional economic frameworks. Interventions to stabilize aggregate risk-taking bring the economy closer to the first-best, increasing expected growth and reducing aggregate volatility.

We propose a model to explain why banks’ balances sheets are exposed to interest rate risk despite the existence of markets where that risk can be hedged. A rise in nominal interest rates raises the opportunity cost of holding currency; since bank liabilities are close substitutes of currency, demand for bank liabilities rises and banks earn higher spreads. If risk aversion is higher than 1, the optimal dynamic hedging strategy is to sustain capital losses when nominal interest rates rise and, conversely, capital gains when they fall. A traditional bank balance sheet with long duration nominal assets achieves that. If the production side of the economy is sensitive to the distribution of wealth between banks and the rest of the economy, this could create debt-deflation dynamics.

This paper tests whether and how differences in education policies affect migration across Europe. We focus on two policies: (i) increasing the length of compulsory education and (ii) introducing foreign languages into compulsory school curricula. The former shifts educational attainment for a significant fraction of the population from low towards medium levels. Using cohort data on migration flows across European countries we find that an additional year of compulsory education significantly reduces the number of emigrants. This is in line with lower emigration rates of medium educated individuals compared to low educated in the majority of European countries. A model in which transferring education across countries is costly gives rise to this result and is also able to replicate the empirical u-shaped pattern of migration by education, with high educated also migrating more than medium educated. We find that introducing a foreign language into compulsory school curricula more than doubles the number of emigrants to the country where the language is spoken. Therefore, depending on the specific content of an education policy, ``more education'' can have very different implications for migration.

To contribute to a scarce literature, in particular for developing and emerging economies, we study the nature of measured risk attitudes and their consequences for migration. We also investigate whether substantial changes in the risk environment influences risk tolerance. Using the 2009 RUMiC data for China, we find that rural-urban migrants and their family members are substantially less risk-averse than stayers. We further provide suggestive evidence that individual risk attitudes are unaffected by substantial changes in the environment and that risk tolerance is correlated across generations.

Policy makers have struggled with the question of how best to increase the science, technology, engineering, and mathematics (STEM) workforce. The key to understanding the role of comparative advantage in skills in determining who goes into STEM fields may be held by U.S.-educated immigrants and the U.S.-born children of immigrants, both of whom are more likely to obtain a bachelor’s degree in STEM than are natives with U.S.-born parents. Using data on recent college graduates from the Baccalaureate and Beyond Longitudinal Survey of 2008, I find that measures of English proficiency fully explain the gap between U.S.-educated immigrants and natives with U.S.-born parents, as well as about 35 percent of the gap between U.S.-born children of immigrants with two foreign-born parents and natives with U.S.-born parents, conditional on demographics, mathematical ability, and college preparation. Using pooled cross-sectional data on adults from the American Community Survey from 2009 to 2012, I also find that measures of English proficiency fully explain the STEM obtainment gap between U.S.-educated immigrants and U.S.-born adults, conditional on demographics. There is little supporting evidence that academic preparation, mathematical ability, or country effects are creating the intergenerational gaps.

Offshoring provides firms with opportunities for internationalization and growth. But, offshoring comes at a cost, especially in presence of inadequate information and trust friction. Immigrant employees could reduce such offshoring transaction costs through their knowledge of former home countries and via access to foreign networks. This is the first firm-level study on migration and offshoring. In estimating a firm-level gravity model on new employer-employee data for approximately 12,000 Swedish firms during the time period 1998-2007, we are able to show that immigrant employees have a significant and positive impact on offshoring. Hiring one additional foreign-born worker can spur offshoring with up to three percent on average, and even more to low-income countries. The findings of this study could have potentially important policy implications. In addition to showing that immigrants could provide options for countries that aim to promote offshoring, the results introduce a completely new channel through which migration may promote development, through offshoring. This could encourage governments of developed nations to enhance their emphasis on migration as a tool for supporting private sector development in emerging economies.

We study the labor market outcomes of males aged 18-60 and their female spouses changing their registration status (hukou) from rural to urban as a result of land expropriation across a number of provinces in China. Using 2008 and 2009 RUMiC data pooling urban, rural and migrant samples, we find that those obtaining an urban hukou have better labour market outcomes than comparable stayers in rural areas and rural-urban migrants whose hukou status does not change. The urban hukou enables the expropriated to access permanent jobs, some in state-owned enterprises, and rely less on self-employment relative to migrants and rural stayers. We also find that children in expropriated households experiencing a hukou change make similar investments in human capital as the children of native urban hukou holders, suggesting that leveling the hukou status amongst children in an urban area may be a first step towards reducing intergenerational inequality.

Using a unique dataset of the Netflix video on demand library, this article measures the characteristics of information goods important for strategically employing a mixed bundling strategy. By matching the titles entering and exiting the library to their relevant properties, I use a characteristic approach to determine when the value to Netflix of adding a title exceeds the licensing fee and when the displacement effect associated with a presence in the library dictates that the title will be offered only as a pure component. Results show that new products are more profitable to bundle, but are offered for shorter lengths of time, and that titles of median commercial success are bundled more frequently than the most and least successful. The number of similar films exiting the library is important to how likely a film is to enter, indicating strategic bundling. These results are generalizable to the streaming video industry and any information goods with rapidly diminishing marginal utility.

Our paper highlights an important aspect of online shopping: When buying at online shops, consumers incur a non-monetary 'registration cost' caused privacy and security concerns and by the time it needs to set up a user account. Privacy concerns have become increasingly important in e-commerce where buying usually requires the disclosure of address and payment information. We show that firms have an incentive to shift this registration cost to an earlier stage of the shopping process and detach it from the actual buying decision, which has implications for the firms' platform design. Intuitively, making the registration cost sunk at the point in time when consumers decide to buy increases the consumers' willingness to buy, for instance, when credit card information is already entered and stored in the consumer's user account. In our model, the consumers are ex ante uncertain about the price and their product valuation. This information can be released to the consumers at zero cost. Firms decide when to release this information: before or after the consumer has signed in to the website. We show that a monopoly firm's equilibrium platform choice involves ex ante registration requirements unless privacy and security concerns become very important. This result is reinforced when incorporating future purchases with the same user account or an informational value of consumer registration to the firm. Moreover, it is robust to introducing price competition; in particular, firms with loyal consumers benefit from requiring ex ante registration. We also show that discounts (store credit) can increase the share of consumers who register and hence a firm's profit even though discounts distort the equilibrium price, which the consumers anticipate. Overall, the choice of the timing of when the 'registration cost' has to be incurred is an important additional instrument for platform design in online markets, which is not available in traditional markets and for other types of transaction costs.

We study the implications of introducing a market for leaked personalized information. An agent wants to reveal her own type to another party in order to receive the best possible treatment. But the information about her type may also be relevant for a third party whose reaction may harm the agent. The existence of a market where the revealed information is traded enables a sorting effect that is adverse for the agent: the information is allocated to those types of third parties who harm the agent most. The agent therefore rationally reveals only little information about her type. However, a naive provision of infor- mation to the market harms not only the naive agent herself but also the more sophisticated agent who acts in the same role. Moreover, we show that the agent may benefit from the introduction of oligopolistic competition in the market for information, relative to a monopolistic market.

We empirically study the effectiveness of a popular attempt to increase a firm's sales and customer base: the use of coupons. We develop a model of consumer demand to ask whether firms can indeed use coupons as a means to price discriminate by attracting new consumers without losing (cannibalizing) revenue from existing ones, and whether these consumers return to the firm after the price promotion. In addition, we ask what types of businesses are most likely to benefit from such promotions. We use a novel method to connect demand for e-coupons through daily-deal sites with regular firm sales. We find that offering a coupon increases demand both during and after the promotion, suggesting that coupons can be used both to price discriminate and to advertise. Still, while coupons increase profits on average, the effect on each firm's profits depends on the type of firm.

Online retailers have maintained a price advantage over brick-and-mortar retailers since they were not required to collect sales tax. Recently, several states have required that the online retailer Amazon collect sales tax during checkout. Using transaction-level data, we document that households living in these states reduce Amazon purchases by 8% after sales taxes were implemented, implying an elasticity of –1.1. The effect is more pronounced for large purchases, for which we estimate a reduction of 11% in purchases and an elasticity of –1.5. Studying competitors in the electronics field, we detect substitution of the lost purchases towards competing retailers.

A number of studies have demonstrated that employing classroom experiments (as opposed to a standard chalk-and-talk pedagogy) has a positive effect on student achievement in economics courses. These findings have raised interest in the classroom experiment pedagogy, but also questions about the requisite number of experiments to achieve these positive outcomes. In the current study we attempt to determine whether more intensive use of classroom experiments is associated with greater student achievement. Our data contains variation in the number of experiments administered in a principles of microeconomics course. We find that students’ course scores improve with the number of experiments in which they participate; however, the impact is diminishing as the number of experiments increases. We also find that classroom experiments can bridge some achievement gaps (between older and younger students and between whites and minorities).

We compare introductory microeconomics courses that employ a blended learning approach to more traditional control courses at a selective liberal arts college. The blended learning courses required students to complete online homework and watch video lectures before problem-based class sessions, while the control courses used paper homework and primarily traditional lecturing. We use the Test of Understanding in College Economics to measure improvement and use the Student Opinion Survey to control for students’ self-reported effort and amount of importance placed on the test. We find that students in the blended courses improve more than those in traditional courses.

Abstract: Assessment in economics is primarily summative in nature, providing students with a final measurement of performance. The purposes of assessment, however, are more broadly defined than simply measuring student achievement and/or assigning grades, and include providing self-assessment for students and feedback to instructors. Formative assessment practices receive far less attention in the economic education literature. We evaluate the efficacy of a blended formative/summative assessment tool- the "challenge quiz"- developed to support mastery learning by students without placing undue burden on instructors. Mastery learning is based on the idea that students should demonstrate comprehensive knowledge of a set of ideas before moving on to new topics. Our innovation provides students with an opportunity to take a more difficult “challenge” quiz to demonstrate their command of the material and improve their grade on regular in-class quizzes. The structure of these quizzes (limited opportunity to exercise option, automatic grade replacement, and more challenging open-ended essay format) motivates students to modify study behaviors (formative component) and take responsibility for knowledge acquisition (summative component). This mastery-based testing approach serves to bring the student's objective of a quality grade in line with the instructor's objective of quality learning.

Abstract: An economics principles course employing random assignment across three sections with different teaching models is used to explore learning outcomes as measured by a cumulative final exam for students who participate in traditional face-to-face classroom instruction, blended face-to-face and online instruction with reduced instructor contact time, and a purely online instructional format. Evidence indicates learning outcomes were reduced for students in the purely online section relative to those in the face-to-face format by 5 to 10 points on a cumulative final exam. Disadvantage students appear to do worse in the online and blended formats.

This paper extends Samuelson's theory of optimal government purchases by accounting for the contribution of government purchases to macroeconomic stabilization. Using a matching model of the macroeconomy, we derive a sufficient-statistics formula for optimal government purchases. The formula implies that the deviation of optimal government purchases from the Samuelson level is proportional to the elasticity of substitution between government and personal consumption times the government-purchases multiplier times the deviation of the unemployment rate from its efficient level. Hence, with a positive multiplier, optimal government purchases are above the Samuelson level when unemployment is inefficiently high and below it when unemployment is inefficiently low. We calibrate the formula to US data. A first implication is that US government purchases are optimal with a small multiplier of 0.04; if the multiplier is larger, US government purchases are not countercyclical enough. Another implication is that optimal government purchases significantly increase during recessions. With a multiplier of 0.5 the optimal government purchases-output ratio increases from 16.6% to 20.0% when the unemployment rate rises from the US average of 5.9% to 9%. With multipliers higher than 0.5 the optimal ratio increases less because fewer government purchases are required to fill the unemployment gap: with a multiplier of 2 the optimal ratio only increases from 16.6% to 17.6%; this is the same increase as with a multiplier of 0.07.

This paper studies how higher-order income risk varies over the business cycle as well as the extent to which such risks can be smoothed within households or with government social insurance policies. To provide a broad perspective on these questions, we study panel data on individuals and households from the United States, Germany, and Sweden, covering more than three decades of data for each country. We find that the underlying variation in higher-order risk is remarkably similar across these countries that differ in many details of their labor markets. In particular, in all three countries, the variance of earnings shocks is almost entirely constant over the business cycle, whereas the skewness of these shocks becomes much more negative in recessions. Government provided insurance, in the form of unemployment insurance, welfare benefits, aid to low income households, and the like, plays a more important role reducing downside risk in all three countries; the effectiveness is weakest in the United States, and most pronounced in Germany. For Sweden, we find that insurance provided within households plays a similar role. We calculate that the welfare benefits of social insurance policies for stabilizing higher-order income risk over the business cycle range from 1% of annual consumption for the United States to 4.5% for Sweden.

We characterize the design of fiscal automatic stabilizers when there are incomplete markets and inefficient business cycle fluctuations. We provide a model that combines nominal rigidities, idiosyncratic income shocks and incomplete markets, but which is sufficiently simple that it can be analyzed with AS-AD diagram. Sticky prices and incomplete markets interact to determine both the effectiveness of the stabilizers as well as the costs of business cycles and the desirability of stabilization policy. In a calibration of the model to match the main facts about both inequality and business cycles, the optimal stabilizers call for a more progressive income and more generous unemployment benefits and income support policies relative to the status quo.<br />

This paper models how transfers, a tax rate on labor income, and the distribution of government debt should respond to aggregate shocks when markets are incomplete. A planner sets a lump sum transfer and a linear tax on labor income in an economy with heterogeneous agents, aggregate uncertainty, and a single asset with a possibly risky payoff. Limits to redistribution coming from incomplete tax instruments and limits to hedging coming from incomplete asset markets affect optimal policies. Two forces shape long-run outcomes: the planner's desire to minimize the welfare cost of fluctuating transfers, which calls for a negative correlation between agents' assets and their skills; and the planner's desire to use fluctuations in the return on the traded asset to compensate for missing state-contingent securities. In a multi-agent model calibrated to match facts about US booms and recessions, the planner's preferences about distribution make policies over business cycle frequencies differ markedly from Ramsey plans for representative agent models.

Empirical evidence on regulatory spillovers in the international setting is limited. Addressing this gap is the subject of the multi-study initiative of the International Banking Research Network (IBRN). This paper reports on cross-country evidence from studies by approximately 20 countries: How do lending, risk-taking, and funding of banks respond to prudential policies implemented in home and foreign markets? What is the evidence on the inward transmissions to the domestic economy and the outward transmission to foreign economies? The comprehensive analysis performed by a team in each country uses micro-banking data for the period between 2000 and 2013 and relies on more precise measures of prudential regulation than were available to prior researchers studying cross-border spillovers. The project is an ideal approach for meta-analysis as it brings evidence from detailed examinations, using similar methodology, but conducted by distinct IBRN countries using their own country’s confidential regulatory data. As researchers apply a common research methodology to the experiences of each country and common prudential policy database for responses, the IBRN generates broadly relevant insights, going well beyond the interesting single country case studies.

Countries and regions differ widely in the degrees to which they coordinate their banking policies -- this may be optimal if the gains from cooperation vary accordingly. Based on a model that identifies externalities as the key benefit to cooperation, and country heterogeneity as the cost, we show that actual cooperation arrangements among countries are consistent with predicted gains: pairs of countries with high bilateral externalities are more likely to have formed cooperation, while the propensity to cooperate declines with measures capturing dimensions of country heterogeneity. Applying the framework to regions, we show that there are large variations in the extent to which they can expect to gain from cooperation. For instance, while for the European Union overall gains appear to be limited as high externalities are offset by similarly high heterogeneity, the group of countries that form the Banking Union display characteristics more conducive to cooperation. Our analysis also allows drawing insights as to how existing regional arrangements may be expanded (or narrowed down) to reap higher cooperation gains.

Mitigating the negative externalities that systemic risk can create for the financial system is the goal of macroprudential supervision. In Europe, macroprudential supervision is conducted both, at the national and at the European level. In principle, national regulators are responsible for macroprudential policies. Since the establishment of the Banking Union in 2014, the largest banks in the Euro Area are under the direct supervision of the European Central Bank (ECB). In this capacity, the ECB can tighten macroprudential measures implemented at the national level. In this paper, we ask whether the drivers of systemic risk differ when applying a national versus a European perspective. We use market data for about 100 listed European banks to measure each bank's contribution to systemic risk (SRISK) at the national and at the Euro Area level. Our research has three main findings. First, on average, systemic risk has increased during the financial crisis. The difference between systemic risk at the national and the European level is not very large but there is a considerable degree of heterogeneity both across countries and banks. Second, we explore the drivers of systemic risk. A bank’s contribution to systemic risk increases in bank size, in bank profitability, and in the share of banks’ nonperforming loans. It decreases in the share of loans to total assets and in the importance of non-interest income. Third, the qualitative determinants of systemic risk are similar at the national and at the European level while the quantitative importance of some factors differs.

Many federal and local governments rely on shaming penalties to achieve policy goals, but little is known about whether these penalties work as intended. Shaming penalties may be ineffective or may backfire by crowding-out intrinsic motivation. In this paper, we measure the effects of shaming penalties in the collection of tax delinquencies. We sent letters to 34,344 tax delinquents who owed half a billion dollars in three U.S. states. We randomized some of the information contained in the letter to vary the salience of financial and shaming penalties. We then measure how the salience of these penalties affected subsequent re-payment rates. We find that increasing the salience of financial and shaming penalties reduces tax delinquency. The effects of shaming penalties are only significant for individuals with smaller debts. We show that publishing lists with tax delinquents does not seem to affect the decision to pay through peer comparisons of the amount owed.

The standard economic approach to optimal taxation assumes that when financial resources are transferred from one group to another, the group giving up resources is necessarily made worse off. Building on recent behavioral and experimental economics work on social preferences, we show that this may not always be the case. We use theory and empirical evidence to investigate the extent to which the most widely used social preference models can explain people's behavior in tax-like settings, in both small and large groups. We conclude that the traditional social preferences models are particularly flawed when it comes to understanding large group behavior. Even though people show aversion to economic inequality in groups of all sizes, people in large groups are significantly less willing to make a private, voluntary donation than what previous experimental studies have indicated. Our results suggest that redistributive taxation can serve as an important social coordination mechanism: many high income earners can be made better off when inequality is reduced through mandatory taxation, while at the same time most would not be willing to make a private, voluntary donation.

A large literature studies the design of income taxes, typically relying on the assumption that people's responses to taxes are optimal. However, taxpayer behavior is governed by perceptions of taxes, rather than the taxes that are actually in place, and thus a precise understanding of taxpayer (mis)perceptions is crucial for policy design (cf. Farhi and Gabaix 2015). This paper reports a new survey experiment—sampling nearly 5000 American taxpayers approximating the US adult population—designed to provide a direct assessment of heuristic perceptions of the US federal income tax. In the survey experiment, participants are asked a series of questions about the tax that would be owed by a hypothetical taxpayer. This taxpayer is nearly identical to the participant in all ways, but household income is varied across questions. The new richness of this design enables direct tests and quantifications of heuristic perceptions that are not possible with existing observational or survey data. In particular, we distinguish between, and separately quantify, systematic biases arising from an over-reliance on own average tax rate (“ironing”), own marginal tax rate (“spotlighting”), and generic over- or under-estimation of tax rates. We find that tax perceptions are well explained by a model with about three-quarters weight on the true tax, one-quarter weight on the forecast of an ironing heuristic, no spotlighting, and some residual overestimation of taxes on low incomes and underestimation of taxes on high incomes. We also find that over-reliance on average tax rates is most prevalent amongst consumers who are not financially literate, have low educational attainment, and do not file their taxes themselves. Using our estimates, we study the implications for informational nudges and optimal tax design.

Recent evidence suggests consumers fail to account for taxes that are excluded from a good’s displayed price. Bounded rationality models predict such “salience effects” should decline with tax size but empirical evidence is lacking. We conducted a laboratory shopping experiment with real stakes to study the effect of tax size on salience. Our results rule out all but a modest effect: at most, taxpayers were 86 percent more unresponsive to an 8 percent tax compared to a 22 percent tax. Salience effects may persist at tax rates substantially greater than those currently employed in the United States.

Revisiting the Phillips curve. Implications for monetary policy.

The American economy has now recovered to full employment. It is time to shift the focus of policy from monetary policy to the longer term budget issues. The national debt has more than doubled relative to GDP in the past decade. Although the debt to GDP ratio will remain relatively stable for the next few years, it is forecasted to rise substantially after that. Large deficits and debt are serious problems for the country. This cannot be fixed by cutting spending for defense and for non-defense discretionary programs which are both projected to decline to less than 3 percent of GDP during the coming decade, lower than we have had in the past half century. Reducing the ratio of debt to GDP must concentrate on raising the rate of GDP growth and on slowing the growth of entitlement spending and raising revenue. It is also possible to raise revenue while lowering marginal tax rates by focusing on tax expenditures and gasoline taxes.

The Great Recession forced central bankers to confront the limitations of using short-term interest rates to combat a large downturn at the zero lower bound. In recent years, policymakers have used large-scale asset purchases (quantitative easing) and forward guidance to deliver additional stimulus once short rates were pinned at zero. Looking ahead, central bankers will need to confront whether and how to use these tools when short rates are normalized. The pace at which to unwind a large balance sheet and its appropriate size in the long run will be important questions. In addition, central banks that have been communicating the path of short rates in some detail will need to decide how much of that path they can credibly communicate going forward.

Reforms to corporate and personal income taxes will be essential in restoring economic vitality. This involves implementing financial transaction taxes; increasing corporate tax rates while incentivizing investment in the U.S. and closing loopholes; increasing taxes on rent-seeking; reforming estate and inheritance taxes; and making personal income taxes more progressive. All reforms must be made with the understanding that deficit reduction in and of itself is not a worthy goal. Rather, taxation must be reformed to help grow the economy, improve distribution, and encourage socially beneficial behavior on the part of firms and individuals.

I have argued that a change in policy could transform the not-so-great American economic recovery of recent years into a great recovery of the kind experienced following earlier financials crises. Yet some argue that it’s too late: if you missed the fast growth of a V-shaped recovery at the start, you’re not going to get it now. In this paper I show that the current position of the economy is like the bottom of a recession. The labor force participation rate has declined for every year of the recovery and is lower than at the bottom of the recession. Productivity growth has averaged only .9 percent per year for the past 5 years, less than half the 2.4% rate of the previous 20 years. From this position a change in policy can generate a post-recession-like boom for several years and a higher steady state growth rate thereafter.

Before people weigh the costs of a criminal action, what affects whether they think of the action in the first place? We suggest that criminal behavior enters into consideration to the extent that it is cognitively accessible. Specifically, people form interpretations of the context and have beliefs about which behaviors are common and adaptive in that context. These interpretations and beliefs are shaped by past experiences and expectations, and they influence which courses of action readily come to mind (i.e., are accessible). Critically, accessibility depends on three parameters: automaticity, identity, and privacy. These parameters make it possible to identify new interventions which would not necessarily stem from the standard economic view.

I describe interventions--and the psychology underlying them--aimed at helping people and societies move past conflict and reconcile with each other.

This paper describes a set of psychologies beyond beta-delta that are important in determining time preference and illustrates them with applications from health and many other areas

We describe several psychological findings on the poor, including mental consequences of poverty as well as of factors such as alcohol and nutrition.

It is widely hypothesized that incomes in wealthy countries are insulated from environmental conditions because individuals have the resources needed to adapt to their environment. We test this idea in the wealthiest economy in human history. Using within-county variation in weather, we estimate the effect of daily temperature on annual income in United States counties over a 40-year period. We find that this single environmental parameter continues to play a large role in overall economic performance: productivity of individual days declines roughly 1.7% for each 1°C (1.8°F) increase in daily average temperature above 15°C (59°F). A weekday above 30°C (86°F) costs an average county $20 per person. Hot weekends have little effect. These estimates are net of many forms of adaptation, such as factor reallocation, defensive investments, transfers, and price changes. Because the effect of temperature has not changed since 1969, we infer that recent uptake or innovation in adaptation measures have been limited. The non-linearity of the effect on different components of income suggest that temperature matters because it reduces the productivity of the economy's basic elements, such as workers and crops. If counties could choose daily temperatures to maximize output, rather than accepting their geographically determined endowment, we estimate that annual income growth would rise by 1.7 percentage points. Applying our estimates to a distribution of "business as usual" climate change projections indicates that warmer daily temperatures will lower annual growth by 0.06-0.16 percentage points in the United States unless populations engage in new forms of adaptation.

This paper proposes and implements a statistical methodology for adjusting employment data for the effects of deviation in weather from seasonal norms. This is distinct from seasonal adjustment, which only controls for the normal variation in weather across the year. Unusual weather can distort both the data and the seasonal factors. We control for both of these effects by integrating a weather adjustment step in the seasonal adjustment process. We use several indicators of weather, including temperature, snowfall and hurricanes. Weather effects can be very important, shifting the monthly payrolls change number by more than 100,000 in either direction. The effects are largest in the winter and early spring months and in the construction sector.

There is a growing body of research literature that uses various modeling techniques to examine how weather and climate affect various economic outcomes. Weather and climate variables have been shown to impact agriculture, industrial output, labor productivity, energy demand, health, current employment statistics as well as other measures of interest to economists. The purpose of this presentation is to give an overview of existing data sets that are useful for economic modeling. In addition there are several new data sets now being developed at the National Centers for Environmental Information (NCEI) that would be useful for both cross-sectional and panel methods in economic research. Every environmental data set has attributes that make it attractive to users, but will likely have some issues that users needs to be aware of. For example, the number of stations in a given region usually changes over time or the observational methods may change. These changes may or may not have an effect on a particular application or project, but it is important for the investigator to be aware of such issues. One possible barrier to effective collaboration between economists and atmospheric scientists is vocabulary and jargon. Some of the known disconnects between economic and weather vocabularies are discussed. A final desired outcome of this presentation is to open a dialogue between scientists at the NCEI and the economic community to enhance the usability and guide future development of weather and climate data sets.

Building on Bloesch and Gourio (2015), this paper measures the sensitivity of various economic activity measures to weather shocks at the state level using a large panel data set. We find strong evidence of weather effect on monthly economic indicators, but these are quickly reversed the next month. We also find that these effects are highly heterogeneous. Notably, the effect of an inch of snowfall is strongly negatively related to the average snowfall in the state. This has consequences for the appropriate weighting of weather data for aggregate forecasting. We provide estimates of the historical effect of temperature and snowfall.

We study whether and how politicians can influence the behaviour of CEOs and firm performance with prestigious government awards. We present a simple model to develop the hypothesis that government awards have a negative effect on firm performance. The empirical analysis uses two legal reforms in New Zealand for identification: Knighthoods and damehoods were abolished in April 2000 but reinstated in March 2009. The findings are consistent with the predictions of the model. The results suggest that awards serve as an incentive tool through which politicians influence firms in favour of employees to the detriment of shareholders.

This paper investigates how executive employment contracts influence corporate financial policies during the final year of the contract term, using a new, hand-collected data set of CEO employment agreements. On the one hand, the impending expiration of fixed-term employment contracts creates incentives for CEOs to engage in strategic window-dressing activities. We find that, compared to normal periods, CEOs manage earnings more aggressively when they are in the process of contract renegotiations. Correspondingly, during CEO contract renewal times, firms are more likely to report earnings that meet or narrowly beat analyst consensus forecasts. Moreover, CEOs also reduce the amount of negative firm news released during their contract negotiation years. On the other hand, we find that merger and acquisition deals announced during the contract renegotiation year yield higher announcement returns than deals announced during other periods, suggesting that the upcoming contract expiration and renewal can also have disciplinary effects on potential value-destroying behaviors of CEOs. In addition, we show that firms whose CEOs are not subject to contract renewal pressure do not experience such corporate policy changes and that CEOs who engage in manipulation during contract renewal obtain better employment terms in their new contracts, in terms of contract length, severance payment, and salary and bonus. Overall, our results indicate that job uncertainty created by expiring employment contracts induces changes in managerial behaviors that have significant impacts on firm financial activities and outcomes.

This paper examines managers’ incentive to “play it safe.” We find that, after managers are insulated by the adoption of an antitakeover law, managers take value-destroying actions that reduce their firms’ stock volatility and risk of distress. To illustrate one such action, we show that managers undertake diversifying acquisitions that target firms likely to reduce risk, have negative announcement returns, and are concentrated among firms whose managers gain the most from reducing risk. Our findings suggest that instruments typically used to motivate managers, like greater financial leverage and larger ownership stakes, exacerbate risk-related agency challenges.

We provide evidence that not only have flows to socially responsible or sustainable and responsible (SRI) mutual funds shown greater growth, more persistence and less performance sensitivity than flows to conventional funds, but also that these attributes appear to result from investors’ nonfinancial considerations. Using a differences-in-differences approach, we find that the greater flows to SRI funds arise from exogenous events expected to heighten investors’ considerations of such funds. We also find a high level of persistence in SRI funds’ ESG profiles, which are generally different from those of conventional funds, consistent with their charters.

We examine whether financial analysts curb firms' socially irresponsible activities, relying on brokerage closures and mergers as natural experiments that create exogenous drop in analyst coverage. Our difference-in-differences approach demonstrates that a reduction in analyst coverage causes firms to engage more aggressively in corporate social irresponsibility, especially in the dimensions of environmental issues and product quality and safety concerns. The findings are consistent with the view that pressure from external monitors reduces firms' irresponsible behavior. The effects of analyst coverage on irresponsible activities are more pronounced in firms with lower initial analyst coverage, weaker corporate governance and higher financial constraints. Our paper identifies the deterrent effect of financial analysts as an important determinant in firms' CSR choice, and sheds light on the impact of financial analysts on non-financial stakeholders.

In this article, I estimate the effect of mandatory greenhouse gas (GHG) emissions disclosure on corporate value. Using the introduction of mandatory GHG emissions disclosure requirements for firms listed on the Main Market of the London Stock Exchange as a source of exogenous variation in disclosure policies, I find that firms most heavily affected by the new regulation experience significantly positive valuation effects. Consistent with the notion that climate change is more relevant to larger firms and to firms belonging to carbon-intensive industries, the effect is strongest for the largest firms and for firms operating in the oil and gas and basic materials industries. Overall, the evidence shows that investors value increased transparency regarding corporate climate change risks positively. The results have important implications for security markets regulation in other jurisdictions, e.g., the United States.

Prior theory suggests that time variation in the degree to which leverage constraints bind affects the pricing kernel. We propose a demand-based measure for this leverage constraint tightness by inverting the argument that constrained investors tilt their portfolios to riskier assets. We show that the average market beta of actively managed mutual funds -- intermediaries facing leverage restrictions -- captures their borrowing demand and thus the tightness of leverage constraints. Consistent with theory, it strongly predicts returns of the betting-against-beta portfolio, and is a priced risk factor in the cross-section of mutual funds and stocks. Funds with low exposure to the factor outperform high-exposure funds by more than 5% annually, and for stocks this difference reaches 7%. Our results show that the tightness of leverage constraints has important implications for asset prices.

I develop a method to extract only the priced factors from stock returns. First, I use multiple regression on anomaly characteristics to predict expected returns. Next, I form portfolios of stocks sorted by their expected returns. Then, I extract statistical factors from these sorts using principal components. The procedure isolates and emphasizes the comovement across assets that is related to expected returns as opposed to firm characteristics. The procedure produces level, slope and curve factors for stock returns. The factors perform better than the Fama and French (1993, 2014) three and five factor models and comparably to the four factor models of Carhart (1997), Novy-Marx (2013) and Hou, Xue, and Zhang (2012). Horse races show that other factors add little to the Level, Slope and Curve factors. The Level, Slope and Curve factors have macroeconomic interpretations. The factors capture strong variation in consumption growth across the sorted portfolios, and when embedded in an ICAPM, proxy for innovations to dividend yield, credit spread and stock volatility.

We propose a new method to select amongst a large group of candidate factors -- many of which might arise as a result of data mining -- that purport to explain the cross-section of expected returns. The method is robust to general distributional characteristics of both factor and asset returns. We allow for the possibility of time-series as well as cross-sectional dependence. The technique accommodates a wide range of test statistics. Our method can be applied to both asset pricing tests based on portfolio sorts as well as tests using individual asset returns. In contrast to recent asset pricing research, our study of individual stocks finds that the original market factor is by far the most important factor in explaining the cross-section of expected returns.

We model and document the novel notion that direct government intervention in a market --- e.g., central bank trading in exchange rates --- may induce violations of the law of one price (LOP) in other, arbitrage-related markets --- e.g., the market for American Depositary Receipts (ADRs, dollar-denominated securities fully convertible in a preset amount of foreign shares). We show that the introduction of a stylized government pursuing a non-public, partially informative price target in a model of strategic, multi-asset trading and segmented dealership generates equilibrium price differentials among fundamentally identical assets --- especially when markets are less liquid, speculators are more heterogeneously informed, or uncertainty about government policy is greater. We find empirical evidence consistent with these predictions in a sample of all available ADRs traded in the major U.S. exchanges and intervention activity of developed and emerging countries in the currency markets between 1980 and 2009.

This paper analyzes financial intermediation chains in a search model with an endogenous intermediary sector. We show that the chain length and price dispersion among inter-dealer trades are decreasing in search cost, search speed, and market size, but increasing in investors' trading needs. Using data from the U.S. corporate bond market, we find evidence broadly consistent with these predictions. Moreover, as search speed approaches infinity, the search equilibrium does not always converge to the centralized-market equilibrium: prices and allocation converge, but the trading volume may not. Finally, the efficiency of the intermediary sector size is analyzed.

Short-rebate fees are a strong predictor of the cross-section of stock returns, both gross and net of fees. We document a large ``shorting premium'': the cheap-minus-expensive-to-short (CME) portfolio of stocks has a monthly average gross return of 1.31%, a net-of-fees return of 0.78%, and a 1.44% four-factor alpha. We show that short fees interact strongly with the returns to eight of the largest and most well-known cross-sectional anomalies. The anomalies effectively disappear within the 80% of stocks that have low short fees, but are greatly amplified among those with high fees. We propose a joint explanation for these findings: the shorting premium is compensation for the concentrated short risk borne by the small fraction of investors who do most shorting. Because it is on the short side, it raises prices rather than lowers them. We proxy for this short risk using the CME portfolio return and demonstrate that a Fama-French + CME factor model largely captures the anomaly returns among both high- and low-fee stocks.

We present broad-based evidence that the monthly cash needs of institutions induce systematic patterns in global stock returns. First, we document strong reversals in stock index returns around the last monthly trading day that guarantees cash settlement before month end. Second, we present direct evidence that links these reversals to institutional trading activity and funding conditions. Third, we find that the reversals are stronger for larger and more liquid stocks, and those more commonly held by mutual funds, a popular implementation vehicle among institutions. Finally, we show that mutual funds’ sensitivity to month-end reversals predicts their performance.

Leverage constraints are an important pillar of bank regulation. Yet, this paper argues that in times of economic turmoil affecting a bank's borrower base at large, the traditional bank risk measures of leverage and capital ratios understate the total increase in bank risk. In a sequence of systematic shocks hitting the borrowers, the impact on a bank's asset value grows disproportionately with every bump due to the concavity of the loan value in the borrower's assets. Although this increase in credit exposure cannot be reflected by capital ratios, a structural default model can capture the added sensitivity. Using a sample of 334 non-financial firms and 27 banks, we demonstrate the nonlinear nature of the changes in banks' risk exposures after a series of shocks to their borrowers and show that the effect is more severe for firms with low ratings. We also simulate the impacts of the same series of shocks under different leverage scenarios and are thus able to assess the magnitude of asset risk relative to leverage risk. Further it appears that the benefit of ex-post deleveraging after a shock is limited despite its high cost. The results emphasize the importance of systematic risk among borrowers and of the ongoing monitoring of changes in economic climate so as to induce banks to provision adequately for risk changes.

Limited attention has been paid to the comparative fate of banks benefiting from TARP Capital Purchase Program (CPP) funding and less fortunate banks subject to FDIC resolution. We address this omission by investigating two core issues. One is whether commercial banks that ended up being subject to FDIC resolution received CPP funds. The other is whether the non-allocation of CPP funds led viable commercial banks into FDIC receivership. Our findings show almost no overlap between CPP-funded and FDIC-resolved commercial banks, but we provide evidence that a significant number of FDIC-resolved banks could have avoided receivership if they had been allocated CPP funding. By comparing estimated funding and resolution costs we also show that bailing out more banks would have been cost-efficient. While our results do not allow for any policy suggestion on the optimality of bail-outs per se, they suggest that once a bail-out program is already on the table, it is better to err on the side of rescuing too many rather than too few banks.

We investigate the transmission of central bank liquidity to bank deposit and loan spreads of European firms over the January 2006 to June 2010 period. When the European Central Bank (ECB) allocated liquidity to banks in a competitive tender at the beginning of the crisis, higher “aggregate” central bank liquidity (i.e. the total liquidity in the banking system that is held at the ECB) reduces bank deposit rates of low risk banks but has no effect on deposit rates of high risk banks or on corporate loan spreads of high or low risk banks. After the ECB started to fully allot all liquidity requested by banks via its refinancing operations on October 8, 2008, an increase in liquidity decreases deposit rates of both high and low risk banks. While loan spreads of low risk banks decrease, those of high risk banks remain unchanged also under full allotment of liquidity. We find that borrowers of high risk banks refinance term loans drawing down loan commitments. They have lower payouts, lower capital expenditures and lower asset growth compared with borrowers of low risk banks. Our results suggest a differential transmission of central bank liquidity of low versus high risk banks, and an impaired transmission to corporate borrowers of high risk banks.

This paper assesses whether more effective enforcement of insider trading laws increases the rate of technological innovation. Based on over 100,000 industry-country-year observations across 97 economies from 1976 to 2006, we find evidence consistent with the view that enforcement of insider trading laws spurs innovation—as measured by patent intensity, scope, impact, generality, and originality—after controlling for country-year and industry fixed effects. Consistent with theory, the relationship between innovation and insider trading laws is strongest in industries that are naturally innovative, opaque, and dependent on equity, where we use the U.S. to benchmark industries.

We analyze the effect of the human capital or “quality” of the top management of a firm on its innovation activities. We extract a “management quality factor” using common factor analysis on various individual proxies for the quality of a firm's management team, such as management team size, fraction of managers with MBAs, the average employment- and education-based connections of each manager in the management team, fraction of members with prior work experience in a top management position, the average number of prior board positions that each manager serves on, and the fraction of managers with doctoral degrees. We find that firms with higher quality management teams not only invest more in innovation (as measured by R&D expenditures), but also have a greater quantity and quality of innovation, as measured by the number of patents and citations per patent, respectively. We control for the endogenous matching of higher quality managers and higher quality firms using an instrumental variable analysis where we use a function of the number of top managers who faced Vietnam War era drafts (and therefore had an incentive to go to graduate school to get a draft deferment) as an instrument for top management human capital. We also show that an important channel through which higher management quality firms achieve greater innovation success is by hiring a larger number of inventors (controlling for R&D expenditures), and also by hiring higher quality inventors (as measured by their prior citations per patent record). Finally, we show that firms with higher quality top management teams are able to develop a larger number of both exploratory and exploitative innovations.

Using a sample of venture capital (VC)-backed initial public offering (IPO) firms, we study the effect of financial intermediaries’ tight leash on entrepreneurs’ innovation productivity. We find that financial intermediaries’ tight leash impedes innovation: IPO firms are significantly less innovative when VCs interfere with their development more frequently through staging—as measured by a larger number of VC financing rounds. To establish causality, we exploit plausibly exogenous variation in the frequency of direct flights between VC domiciles and IPO firm headquarters that are due to airline restructuring. Our identification tests suggest a negative, causal effect of VC staging on firm innovation. Furthermore, staging is more detrimental to innovation when innovation is more difficult to achieve and when VCs are less experienced with the industry in which their entrepreneurial firms operate. By documenting a previously under-recognized adverse consequence of VC stage financing, our evidence suggests that short-termist incentives can be cultivated even in a private equity market populated with long-term, sophisticated investors.

How does competition affect innovation and how it is financed in R&D-intensive firms? We study the interaction between competition, R&D investments, and the financing choices of such firms using data on biopharmaceutical firms. To motivate the empirical hypotheses, we develop a model for such firms in which their capital structure and amounts invested in R&D as well as existing assets are all determined in response to the degree of competition in the industry. The key predictions are that, as competition increases, such firms will: (1) increase R&D investment relative to investment in assets-in-place that support existing products; (2) carry more cash and maintain less net debt; and (3) experience declining betas but greater total stock return volatility due to higher idiosyncratic risk. While the focus is on the biopharmaceutical industry, the results are broadly applicable to other R&D-intensive industries as well. We provide empirical support for these predictions. In order to deal with the endogeneity issue introduced by the fact that a firm's R&D investments and the product-market competition it faces influence each other, we provide further evidence through a differences-in-differences analysis.

Relative to other countries, the U.S. has abnormally few listed firms today given its level of economic development and the quality of its institutions. We call this the “U.S. listing gap” and show that it is consistent with a decrease in the net benefit of a listing for U.S. firms. We find that the probability that a firm is listed is lower than at the listing peak in 1996 for all firm size categories though more so for smaller firms. From 1997 to the end of our sample period in 2012, the new list rate is low and the delist rate is high compared to U.S. history and to other countries. The high delist rate accounts for roughly 46% of the listing gap and the low new list rate for 54%. The high delist rate is explained by an unusually high rate of acquisitions of publicly-listed firms compared to previous U.S. history and to other countries. We rule out industry changes, changes in listing requirements, and the reforms of the early 2000s as explanations for the gap.

Using a proprietary database of institutional investor bidding for shares in Chinese IPO allocations, we examine the information content and predictive ability of bidding dispersion. IPOs with higher levels of bid dispersion experience greater first-day return than other IPOs by discounting the offer price as a compensation for investors’ bearing valuation uncertainty and estimation risk, as well as greater trading volume and price volatility. Our results hold after controlling for potential endogeneity and using alternative dispersion measures. Dispersion of bidding prices is negatively predictive both of one-year operating performance post-IPO and three-month stock performance. Bid characteristics, such as the timing of the bid and the frequency and the type of the bidder, matter in the pricing of IPOs, as does the geographic distance between bidders and the IPO firm. Using a 2010 regulation change in the IPO share allocation rule as a natural experiment, we show that the new rule decreases dispersion among institutional bidders but increases the effect of dispersion on first-day return. The evidence highlights the role of institutions and regulatory policies on IPOs in China.

We study the consequences of an exogenous U.S. deregulation allowing small firms to accelerate public equity issuance. Post-deregulation, firms double their reliance on public equity (both overall and compared to a control group), transition away from private investments in public equity, and increase their total annual equity issuance by 45%. This is accompanied by a significant reduction in equity issuance costs, an 18% increase in investment, and a 12% decline in financial leverage. The effects are larger for growth firms and financially constrained firms. Our findings provide evidence that reducing issuance frictions benefits issuers even in highly developed markets.

This paper studies how bank competition affects real estate prices via its impact on credit supply and risk taking in the real estate market. Using interstate banking deregulation and the regression discontinuity design (RDD) for identification, I find that banking competition has a causal and positive effect on real estate prices. Specifically, relaxing one of the four banking restrictions increases real estate prices by about 1.5%. I find that banking deregulation leads to higher loan-to-value ratios and lower mortgage interest rates. In examining the effect on risk-taking, I find that banking deregulation leads to higher commercial real estate default rates. Finally, I show that the results are not only from commercial banks that are directly affected by deregulation but also from non-bank mortgage lenders that are not directly impacted by deregulation, which suggests that the results are driven by the competitive effect of interstate banking deregulation.

This paper studies the impact of bank monitoring on the risk of US equity REITs. Using a unique, hand-collected data sample of mortgage balances, I show that bank screening and monitoring of REIT assets via utilizing secured mortgage financing (vs unsecured, recourse debt) lowers the overall company risk of a REIT. At the asset level, screening results in primarily retail and office assets located in primary markets, i.e. more transparent assets, being pledged as collateral. Further, I find evidence consistent with the role of lender monitoring for secured, non-recourse mortgage loans.

Multi-market banks reallocate capital when local credit demand increases after natural disasters. Following such events, credit in unaffected but connected markets declines by about 50 cents per dollar of additional lending in shocked areas, but most of the decline comes from loans in areas where banks do not own branches. Moreover, banks increase sales of more-liquid loans in order to lessen the impact of the demand shock on credit supply. Larger, multi-market banks appear better able than smaller ones to shield credit supplied to their core markets (those with branches) by aggressively cutting back lending outside those markets.

This paper analyzes the effect on consumer bankruptcy filings as a result of removing geographic restrictions on intrastate banking. The empirical strategy is to examine this issue more closely by considering three distinct methodologies applied to U.S. county-level data. The analysis based on (i) panel data for all counties, and (ii) panel data of contiguous counties along state borders reveals an insignificant effect. When we use a quasi-natural experiment based on 186 (treatment) events and 4,870 non-event (i.e., placebo) pairs of contiguous counties, we find that bankruptcy filings increase (decrease) in only five (one) of seventeen states with treatment counties.

This paper studies the impacts of two widespread phenomena on home prices in down cycles of the real estate market – rampant delisting of properties that fail to sell despite genuine marketing effort, and large number of motivated sellers who are pressured to sell because of various liquidity constraints. While there is a general belief that both these factors exert negative impacts on home prices, we extend the literature by formally examining such impacts. We provide a set of simple quantitative tools that enable analysts to infer the true market condition, and sellers to form realistic selling expectations, by adjusting the market average to reflect such impact. Empirically, we demonstrate that the market average, based solely on sold properties, tends to be significantly biased if rampant property delisting exists. In addition, sellers under liquidity constraints are expected to receive a much lower return and bear higher risk than the market average. The findings of this paper can help market participants and policy makers to understand the true housing market conditions, especially in the down cycles of the market during which proper policy responses are most needed.

Empirical evidence suggests that when the market becomes increasingly volatile, trading activities may be depressed or even halted. This paper develops a model and formally studies the relationship between the market volatility and its liquidity in the real estate market. Different information structures are examined in the context of a seller-offer, ultimatum bargaining game. We show that an increase in the market volatility negatively affects its liquidity when information is asymmetric between the buyer and the seller. However, market volatility has no effect on liquidity under symmetric information when the buyer and the seller are either both informed or both uninformed.

This study investigates whether the unprecedented liquidity injected in the economy by the U.S Fed through unconventional monetary policy measure, popularly known as quantitative easing (QE), is a systematic factor that can explain the abnormally low U.S. investments in new single family housing (housing starts) of recent years. We specify and estimate a model of new housing investments supply that incorporates constructed aggregate liquidity factors that capture QE liquidity injections. The results suggest that new housing investments liquidity betas, their sensitivities to liquidity shocks from QE transmitted through the constructed aggregate liquidity factors significantly influence the level of U.S. investments in new single family housing over the study period. Further, there is evidence of heterogeneity in the responsiveness of new housing investments to shocks from the aggregate liquidity factors in that housing markets constrained by excessive land use controls exhibit relatively muted sensitivities to fluctuations in the aggregate liquidity factors induced by QE. Remarkably, we also find that in the absence of GSE and FHA capital market activities induced by QE that channel credit into housing market, the contraction in new housing investments would have been worse. Additionally, the build-up in the inventory of single family homes-for-rent, a structural factor that emerged in housing markets during the recession, exerts a down-ward pressure on the supply of new single family housing investments.

This paper introduces Nash bargaining into a search model in order to identify various channels through which agent gender affects selling price and selling time in the resale market for houses. The theory can be used in conjunction with the empirical model to determine agent bargaining power and how it is affected by dealing with the same or opposite sex agents. A decade of MLS data from Virginia reveals that listing agent sex and the mix of listing and selling agents involved in a transaction affect prices and liquidity. The bargaining power of agents depends on their sex and that of the agent on the other side of the transaction, but it also depends on housing market conditions. Female selling agents have stronger bargaining power when facing female listing agents than when facing male agents in rising or falling markets. The bargaining power of male selling agents is stronger when facing female listing agents than when facing male agents in the rising market, but it is invariant with respect to listing agent sex in the declining market.

The last decade’s boom and bust in U.S. commercial real estate (CRE) prices was at least as large as that in the housing market and also had a large effect on bank failures. Nevertheless, the role of CRE in the Great Recession has received little attention. This study estimates cohesive models of short-run and long-run movements in capitalization rates (rent-to-price-ratio) and risk premiums across the four major types of commercial properties. Results indicate that CRE price movements were mainly driven by sharp declines in required risk premia during the boom years, followed by sharp increases during the bust phase. Using decompositions of estimated long-run equilibrium factors, our results imply that much of the decline in CRE risk premiums during the boom was associated with weaker regulatory capital requirements. The return to normal risk premia levels in 2009 and 2010 was first driven by a steep rise in general risk premia that occurred after the onset of the Great Recession and later by a tightening of effective capital requirements on commercial mortgage-backed securities (CMBS) resulting from the Dodd-Frank Act. In contrast to the mid-2000s boom, the recovery in CRE prices since 2010 has been mainly driven by declines in real Treasury yields to unusually low levels. Our findings have important implications for the channels through which macro-prudential regulation may or may not be effective in limiting unsustainable increases in asset prices.

I study a natural experiment in commercial mortgage-backed securities (CMBS) where some special servicers changed owners (treatment group) from 2009-2010 but not others (placebo group). The ownership change linked sellers (special servicers who liquidate CMBS assets on behalf of bondholders) and buyers (new owners), presenting a classic self-dealing conflict. Average loss rates for liquidations are 11 percentage points higher (implying additional losses of $3.2 billion for bondholders) after treated special servicers changed owners, but not for the placebo group. I provide the first direct measure of self-dealing that links buyers and sellers in securities markets in the United States.

We present a general equilibrium model of a subprime economy characterized by limited recourse mortgages, asymmetric borrower credit quality information, and mortgage lenders that either own or sell the loans they originate. Because portfolio lenders can acquire soft information at low cost and are capacity constrained, there is another potential funding source for consumers: the conduit loan market. Conduit lenders originate mortgages based on hard information only, but have access to the securitized investment market. This trade-off between adverse selection and secondary market liquidity determines the equilibrium size of the portfolio and conduit loan markets in our model. Our theory rationalizes the emergence of the subprime conduit mortgage market and subsequent collapse of the traditional lending model, and also the recent rise and fall of the subprime conduit mortgage market. In addition, the model sheds some light on the access to and fragmentation of the rental and owner-occupied segments of the housing market, and also illustrates how house prices respond to changes in the credit scoring technology and mortgage securitization rate, among other things.

We use data from prospectus supplements to measure the complexity of securitized products. We find that securities in more complex deals default more. The higher likelihood of default is economically meaningful: a one standard deviation increase in complexity represents a 17% increase in default on AAA securities. However, yields of more complex securities are not higher indicating that investors do not perceive them as riskier. The relation between complexity and default is not primarily due to issuers masking low quality loans as it persists after controlling for the collateral default rate. Rating agencies are more lenient in rating complex deals.

A marked trend in the 21st century higher education academic workforce is the growth of contingent and part time academic labor, both in the growing for-profit sector as well as in the traditional non-profit sector. This change, which has been unfolding for at least two decades, has implications for the employment prospects of Ph.D.’s across the disciplines, particularly in fields considered part of the traditional liberal arts and sciences, as well as for one of the most highly educated workforces in the U.S., college professors. What some have dubbed the ‘artisan’ model of education, which relies on labor-intensive construction of classes and close mentoring of students, seems to be changing to a more transactional delivery of content and provision of credential model. Some analysts have predicted that, as colleges and universities continue to struggle with the ‘affordability crisis’ in higher education, costs must be further cut by greater use of online classes and pre-packaged modules, with the result that the traditional full time faculty will become a thing of the past. If so, university education could devolve into a very different system than has existed for centuries, serious implications for the future of educated workers across the spectrum. We will use Veblen’s critique of the business management of universities as a framework for our argument and analysis.

This paper synthesizes institutionalist theories of wage determination for teaching pluralist labor economics. They focus on relative bargaining power, on productivity which is primarily inherent in the job and on how institutions set the context for wage bargaining. The institutionalist view of bargaining power goes beyond market structures, such as monopsony or collective bargaining. Relative bargaining power, like pre-market or social discrimination, is based in a wider context. It is shaped by social norms and attitudes about appropriate behavior as well as public policies that a) exclude or restrict certain ages or genders from the potential labor force, b) separate the potential labor force into non-competing groups, c) affect incentives for individuals in particular categories to participate in labor supply and d) affect the responsibilities of businesses with the workers who produce their goods. Where variations in productivity underlie differentials in wages (or more correctly, total compensation) this is primarily based in the job rather than the individual (see Thurow 1986). Workers in a particular job have access to a given quantity and quality of capital and other resources and are dependent on revenues brought in for the product or service. Individual skills and motivation are valuable in competing for the job but cannot affect firm investments in capital or firm demand.

John Kenneth Galbraith follows a long line of institutionalist economists who supported the market economy but were critical of its structure and it treatment of workers and the poor. This paper looks at Galbraith’s view of those structural factors and how they influence the development of labor market institutions. John Kenneth Galbraith rejected the methodological approach of mainstream economics and emphasized an evolutionary process of both formal and informal institutions (habits of mind). While best known for extensions of Veblenian ‘conspicuous consumption’ and theories of corporate behavior, his work reveals also insights about labor. This paper will deal with three: Over fifty years ago, Galbraith included the work experience in what he called ‘quality of life’ and called for translating productivity gains into reduced work hours, greater safety, and more satisfying work as well as the higher pay that would provide more consumer demand. He also recognized that technological change drove new market structures to effectively use specialized knowledge, group decision-making and a more advanced division of labor, all of which would affect workers, positively or negatively. Thirdly, Galbraith realized the need for countervailing power to the large corporation, which he saw in unions. They had the ability to bargain for better working conditions as well as a more fair structure of wages. Galbraith would not be surprised that the developing imbalance of power has led large corporations to avoid direct bargaining with workers through outsourcing and contracting.

The nature and significance of the relationship between employers and employees has always been at the heart of the institutionalist tradition in labor economics. In Robert Prasch’s essay “How is Labor Distinct from Broccoli?” (The Institutionalist Tradition in Labor Economics, Dell P. Champlin and Janet T. Knoedler, eds., 2004), he articulated the qualities of labor that define fundamental differences between labor and other marketable commodities and make the employment relationship uniquely different from other market transactions. He also noted that these difference were “once well understood by economists.” Consequently, he argued: “It follows that what is needed is not a project of discovery so much as one of recovery.” Current labor policy discussions focus our attention once again on the relationship between employers and employees, as we seek to understand and develop policies to address the problems of labor market fissuring, contingent and precarious employment, irregular work scheduling, overemployment and underemployment. This requires looking “inside institutions” at the evolving definitions and relationships of employment. This paper will examine the significance and uniqueness of the employment relationship in institutional labor economics, and the insights to be gained from “rediscovering” this perspective and applying it to the analysis of contemporary employment trends, outcomes and policies, as well as introducing this analysis as the foundation of labor economics education.

By most metrics, the financial crisis of 2007-9 produced the most severe recession since the Great Depression of the 1930s, but labor market outcomes show remarkable differences across the countries of the rich world. More specifically, patterns of GDP and productivity growth between 2007 and 2014 do a poor job of accounting for differences in wage and employment performance during and after the crisis. With a new measure of decent jobs (adequate wages and hours), this paper describes trends in GDP, productivity growth, the decent job share of employment, the low wage share, and the real wage by gender and large economic sector for the US, Canada, the UK, France and Germany. It then considers these trends in light of cross-country differences in how labor markets function, with the labor market understood not just in terms of the interaction of labor supply and demand, but more broadly as the set of social mechanisms that coordinate terms of employment. These mechanisms are called for convenience “institutions”, which include not just legal and informal rules and social norms, but also the consequential actions of organizations (e.g., government policies and programs, and the policies of firms, trade unions and advocacy organizations) and the effects of social structures (e.g., race, gender and immigration dynamics).

The gap between the economic theory of action and the practical reality of choice (analyzed in the Aristotelian practical wisdom tradition) cannot be bridged through the development of more complex models. This poses a challenge for the use of economic models for policy analysis: they cannot help but leave out of their formal analysis aspects of actual decision making (practical wisdom) which are crucial to the operation of the economy. Insights from three different treatments of the gap between the formal analysis of choice and the reality of human behavior (Suchman’s studies of human-machine interaction, Scott’s analysis of mētis, and Vernon Smith’s studies of ecological rationality) offer guidance for how economists might modify the insights of their models of choice when offering policy advice.

This paper, by White, asks whether modern finance, with its increasing reliance on intermediation and the resulting moral hazard, violates Immanuel Kant's dictum not to treat person simply as means. White will explore the meaning of markets and the role of ethics therein in order to divine the responsibility of actors and regulators in financial markets.

For Smith and, even more, for James Mill, factions are associated with zero-sum outcomes. In Mill’s view, unchecked power is the means by which an individual or a group promotes its interest to the detriment of others. In the context of the financial crisis this played out as those within the circle of front running traders such as Bernie Madoff were well aware of the front running, of taking from some – outside the faction – to benefit those on the inside of the faction. This paper, accordingly, explores the darker side of sympathy in classical economic analysis, as well as the potential means of weakening the impulse to form factions.

This paper centres around the basic proposition that societies with strong economic democracy are more likely to achieve crucial public policy goals; such as combating climate change, reducing inequalities and creating more sustainable forms of economic activity. In doing so, we attempt to construct an index of economic democracy (EDI) as both a tool to test the basic proposition and as a key indicator of individual country performance in the pursuit of open and democratic governance of the economy. A key argument advanced here is that dominant economic policy regimes in many OECD countries - where decision making is increasingly monopolised and centralised among financial and economic elites and “experts” - have had negative effects in terms of greater income and wealth equalities, increasing susceptibility to financial crises and fragility, and arguably a failure to effectively address the causes of climate change.<br /> <br /> We make a broad definition of economic democracy – employing four dimensions: (i) workplace (nature and structure of employment relations, levels of co-determination, etc); (ii) degree of associational economic governance (e.g. level of cooperatives within economy, number and extent of business and labour associations in economic policy forums); (iii) distribution of economic decision-making powers across space and sector (e.g. ownership structure, size structure of firms, spatial division of labour between regions); (iv) transparency, openness and democratic engagement of broader population in macro-economic decision-making (e.g. central bank governance structures).<br /> <br /> In articulating our case, we draw from the work of John Dewey (1963), for example, in emphasising the deliberative aspect of economic democracy. We anticipate that greater economic democracy does not resonate with financialisation.

The 2016 ASE theme centers on the increasing role of financialisation in economic life, and the inherent ethical tensions created by the profit motive in the presence of moral hazards, lack of transparency, regulatory capture, and other issues. The papers in this session would explore how five historical thinkers might view modern financial institutions and the boundaries of private and social action. The “great thinkers” to be explored are Aristotle, Kant, Smith, Mill, and Keynes. This session will argue that these thinkers provide much of interest to social economists, and the specific focus on financial intermediation may provide a new twist to an old story. All of the authors have published extensively about the great thinker to be explored, and bring of a depth of insight to the implications for the financial crisis of 2008.

We report results from the first (to our knowledge) randomized controlled trial to test the impact of water-efficient technology adoption on water use. Encouraging humans to adopt technologies that use less water per unit of activity has been highlighted in numerous government and multilateral plans as a key component of climate change adaptation strategies. For example, a State of California report (2008) urges the region to “aggressively increase water use efficiency” for climate change adaptation. In a drought-prone area of Central America that is forecasted to experience more frequent droughts in the future, engineers have estimated that more efficient technologies in rural homes will reduce water use by almost 25%. Two prominent reasons why such technologies will not reduce water use by as much as engineers predict are: (a) residents change their behavior in response to the new technology (as one might see in the energy efficiency context); and (b) disadoption of the technology. We randomly offered free water-efficient technology and installation to over one thousand rural residential homes who expressed an interest in acquiring the technology. To test hypotheses related to disadoption, we also randomly required some households to hand over their old technology to the implementers prior to receiving the new technology, and randomly offered some households a performance bonus for continuing to use the technology for up to six months. We conducted audits of households 5-6 months after treatment assignment to determine if the technologies remain installed. These additional treatments are used to test the popular hypothesis that people disadopt resource-conserving technologies because of insufficient time with the technology, which prevents them from reducing the marginal costs (learning by doing) and forming more accurate beliefs about the marginal benefits (learning by observing).

To date, the energy savings from energy-efficiency building retrofits are assessed using ex-ante engineering models. This paper provides the first evaluation of engineering models that uses residential billing data, combined with data on observable characteristics of each residence, to assess the accuracy of engineering predictions across nine retrofit technologies used in Gainesville, Florida. The analysis combines three central datasets including (i) an eight-year panel of household-level monthly electricity and natural-gas consumption data for 30,000 residences in the Gainesville Regional Utility service area from 2004 to 2012, (ii) information about the type and timing of retrofits for over 12,000 rebate program participants from 2008 to 2012, (iii) household-level engineering predictions of energy savings for each program participant. To evaluate average energy savings of DSM programs using quasi-experimental techniques, I employ a two-way fixed effect model, where a panel of monthly energy bills is used to eliminate time-constant features of each residence. As a further innovation, I exploit differences in the timing of retrofit installation during the five-year rebate program. To identify treatment effects for early retrofits installed at time t, I use a control group made of future program participants that have not yet installed retrofits at time t. By using only treated households, I eliminate bias introduced from participant self-selection. Results indicate that household engineering models are surprisingly accurate, a finding that contrasts sharply with literature validating aggregate engineering models. In four of nine retrofit programs, engineering models predicted energy savings within 20% of actual energy reduction (pool-pump replacement, refrigerator removal, duct repair). However, engineering bias vary in direction and magnitude across retrofit technologies. For the remaining five programs, engineering biases range from 60% under prediction (central air-conditioner), to 100% over prediction (attic insulation, air-conditioner maintenance) – modest biases that are 5 times smaller than those cited in previous literature.

Highly advanced, community-level drinking water treatment facilities are increasingly seen as water supply solutions in locations where piped in-house water systems are nonexistent or unreliable. These systems utilize combined technologies, such as advanced filtration plus ultraviolet disinfection or reverse osmosis, which are known to be highly effective for the removal of pathogens and other water contaminants. Yet there is a paucity of rigorous evidence on whether the community-level treatment model delivers water quality and health benefits to households that source water from them. This paper utilizes a quasi-experimental approach that combines construction of counterfactual groups of households with a difference-in-differences methodology to examine such impacts. We find that only a little over 10% of households in treatment villages source water from the community water systems (CWS), and there is no evidence of health and water quality benefits among households in treated villages, relative to controls. Furthermore, among users of the CWS (but not non-users), we observe lower water quality and higher diarrheal disease rates relative to control households. These negative impacts can perhaps be explained by a combination of non-exclusive use of clean CWS water and reduced self-protection against water quality risks: we find evidence that households accessing the CWS increase the number of water sources on which they rely even as they reduce self-protection using in-house water treatment methods. In the longer term, as the CWS model spreads throughout the region, we observe that most of the differences between households in treated and control communities fade away. These findings suggest that caution and additional scrutiny is warranted before concluding that such systems provide safer water to households in communities facing drinking water quality problems.

Through a two-stage randomized control trial, we estimate the impact of energy efficient lightbulbs (compact fluorescent lightbulbs or CFLs) on household electricity consumption and show that household-level efficiency creates a technological externality, in the form of increased electricity reliability. The CFL treatment leads to a reduction in household electricity consumption of approximately 30 kWh per month, which is within the range of the technologically feasible expected electricity savings. Estimates not controlling for externalities are substantially downward biased. The distribution of CFLs can result in transformer-level technological externalities: more intense distribution of CFLs within a transformer leads to two fewer days without electricity per month due to transformer-level outages, a statistically and technologically significant result. This reduction in outages permits households to consume more electricity services. Finally, we investigate the channels through which externalities impact technology adoption and find interactions between peer effects and technological externalities to be critical in inducing take-up.

Entering and incumbent firms can create new products and displace other firms’ products. Incumbents can also improve their existing products. How much of aggregate growth occurs through each of these channels? Using U.S. Census data on manufacturing firms from 1963 through 2002, we arrive at three main conclusions: First, most growth has seemed to come from incumbents’ innovation rather than innovation by entrants. We infer this from the modest market share of entering firms. Second, most growth seems to have come from improvements of existing varieties rather than creation of brand new varieties. We infer this because firm exit rates fall only gradually as firms expand, suggesting they are not accumulating a larger set of products. Third, own-product improvements by incumbents appear to have been more important than creative destruction. We infer this because the distribution of firm growth rates has had thinner tails than implied by a model in which growth is entirely due to creative destruction.

This paper builds an overlapping generations model with three sectors--production, rent-seeking, deterrence-- and heterogeneous labor. It seeks to identify situations in which efficiency-enhancing reforms can or cannot be blocked by rent-seeking households.

This paper analyzes the effects of monetary policy on innovation and imitation in a North-South product-cycle model with foreign direct investment (FDI) and separate cash-in-advance (CIA) constraints on innovative R&D, adaptive R&D and imitative R&D. We find that if the CIA constraint is applied to innovative R&D, then an increase in the Northern nominal interest will raise the rate of Northern innovation and the extent of FDI while reducing the rate of Southern imitation and the North-South wage gap. Regarding the effects of the Southern monetary policy, the object that is liquidity-constrained plays a significant role. If adaptive (imitative) R&D is subject to the CIA constraint, then an increase in the Southern nominal interest rate will raise (reduce) the rate of Northern innovation and the extent of FDI while reducing (raising) the rate of Southern imitation. We also examine the responses of social welfare for Northern and Southern consumers to monetary policy.

This study provides a dynamic macroeconomic model with the features of the institutions of China to study the contribution of rural-urban migration, especially worked-based migration, to the economic development in China. It is a consensus that cheap labor from rural areas has contributed to the industrialization and modernization of China after the reform in 1979. Different from the reduced-form approach adopted by most of the existing literature, we develop a model of heterogeneous agents with endogenous fertility and migration decision. More specifically, the land entitlement of rural households, the differential fertility control policies across urban and rural areas, and rural-urban household registration status are introduced into the model. This study therefore provides a micro-funded macroeconomic model to examine rural households. migration decisions and their relationship with land tenure arrangements, urban job opportunities and the regulations of the household registration system. Calibration analysis of the model is performed, and numerical analysis examining the significances of the pull” and retain” factors of migration and their effects on output levels is performed. Finally, policy experiments on the land entitlement system, migration regulations as well as fertility policies are provided.

School choice reforms, such as lottery and voucher programs, give talented students the choice to sort out of low-performing schools but often leave disadvantaged students behind. This study shows how a Chinese city was successful in helping its low-performing schools to catch up by encouraging talented students to sort into its low-performing schools. The city’s education bureau identified several low-performing middle schools and guaranteed elite high school admission to their top ten-percent graduates. This paper documents that schools affected by this top-ten percent policy improved their performance by 0.3 standard deviation. To understand the underlying mechanisms, the city’s lottery system for middle school assignment is used to test for changes in composition and value-added. Conditional logit regressions show that sixth graders with high math scores and high socioeconomic status were more likely to choose a low-performing policy school after the policy introduction. Instrumental quantile treatment effect estimates show that the value-added gaps between policy schools and over-subscribed schools were closed for students at both higher and lower quantiles. The study suggests that incentives for better students to attend lower-performing schools help narrow not only the school performance gap but also the school quality gap.

We conduct a large scale RCT to investigate peer effects in computer assisted learning (CAL). Identification of peer effects relies on three levels of randomization. It is already known that CAL improves math test scores in Chinese rural schools. We find that paired treatment improves the beneficial effects of treatment for poor performers when they are paired with high performers. We test whether CAL treatment reduces the dispersion in math scores relative to controls, and we find statistically significant evidence that it does. We also demonstrate that the beneficial effects of CAL could potentially be strengthened, both in terms of average effect and in terms of reduced dispersion, if weak students are systematically paired with strong students during treatment. To our knowledge, this is the first time that a school intervention has been identified in which peer effects unambiguously help weak students catch up with the rest of the class without imposing any learning cost on other students.

The importance of non-cognitive skills in shaping long-term human capital and labor market outcomes is widely acknowledged, but relatively little is known about how non-cognitive skills may shape investments by parents early in life. This paper evaluates the parental response to variation in non-cognitive skills among their children in rural Gansu province, China, using a household fixed effects strategy. The results suggest that on average, parents invest no more in children who have better non-cognitive skills relative to their siblings. However, there is significant heterogeneity with respect to maternal education; less educated mothers appear to reinforce differences in non-cognitive skills between their children, while more educated mothers appear to compensate for these differences. The evidence is consistent with this pattern reflecting greater bargaining power for more educated mothers, and a greater preference for intrahousehold equity in outcomes among children by mothers compared to fathers. In addition, there is evidence that these compensatory investments lead to less persistence over time in non-cognitive skills for children of more educated mothers.

A surge of studies on the "New History of Capitalism" grounds the rise of industrial capitalism on the production of raw cotton by slaves. Recent works include Walter Johnson's River of Dark Dreams, Edward Baptist's The Half Has Never Been Told, Sven Beckert's Empire of Cotton, and Joshua Rothman’s Flush Times and Fever Dreams. We compare and contrast the approaches and findings of this influential literature with those the New Economic History of the past generation. We also point to new data and methods. Taken as a whole, our perspective leads to new understandings on the economic history of cotton and labor institutions. Our findings strike at the heart of the many claims popularized by the New Historians of Capitalism.

In an influential article published in 1993, John Taylor described a rule for setting interest rates that he viewed as important both descriptively and prescriptively for the study of central bank behavior and the setting of monetary policy. Rates too high risked recession while rates too low risked inflation. More recently Taylor has suggested that low rates might also precipitate recession by generating asset price bubbles, and has criticized Federal Reserve policy between 2001 and 2004 and after 2008 on these grounds. But the posited link between low rates and bubbles remains controversial, and the proposition that interest rates are the best mechanism for deflating them far from settled. This paper examines US macroeconomic history and policy in the 1920s, asking what a Taylor rule would have prescribed then and comparing that with what actually transpired. The results of the study are not entirely unambiguous, but they do show that for most of the period a Taylor rule would have mandated a policy rate lower than what was actually in effect, indeed often below zero. Yet rates generally above those prescribed did not, in the event, prevent a raging stock market bubble from developing in the second half of the decade. This finding adds to evidence from Britain or New Zealand in the 2000s that asset bubbles can develop when policy rates are above those prescribed by a Taylor rule, as well as when they are below.

This paper revisits the "domestic" side of the Barings Crisis of 1890, which has received almost no attention in contrast to the international dimensions of the crisis. The sparse existing literature is reviewed and new archival evidence constructs a more complete history of how the Bank of England managed the crisis. Although the Barings Crisis is often treated as a minor British event compared to the panics of 1825-1826 and 2007 (Turner, 2013) and even Overend-Gurney, it is considered here as a key event, perhaps a turning point, in the conduct of central banking. Whereas, those crises are renowned because of their magnitude, they were crisis where the authorities lost control of events---policy was reactive. In contrast, the prompt intervention by the Bank and the Treasury in 1890 halted what many believed would have been a more severe crisis than occurred in 1866. The model for this discretionary intervention was almost certainly the intervention by the Banque de France the year before to halt a run on the second largest commercial bank in Paris, the Comptoir d'Escompte (Hautcoeur, Riva and White, 2014). Providing a loan against all the assets---both good and bad---of the Comptoir, all depositors and creditors were made whole. Any losses were to be absorbed by a guarantee syndicate of banks whose composition was in large part determined by their participation in the scheme to corner the copper market that ruined the Comptoir. The directors and the officers of the bank paid a heavy price for permitting the bank to be undermined by the copper scheme, thus mitigating moral hazard.

I outline how an analytical narrative can help to explain the series of calamities from the first through the second world wars and why people were unable to gain control of economic, social and political environments. What troubled people at the time was that they could not explain why these wars, panics, and depressions followed in such quick succession after a century of relative calmness and stability. A veritable army of researchers has not turned up many answers. No one has come up with an "explanatio" for the First World War. My approach is to take the outbreak the war in 1914 as an unexplained event that touched off war at the start of my narrative. Given that as the initial condition, we can then examine how economic and military factors became intertwined with the conduct of the war and the created the problems facing world leaders at the end of the war. While many historians view the two decades following the Treaty of Versailles as a lull between two huge storms, economic historians view the interwar years as a period of intense economic and social turmoil as people struggled to get back into some sort of “normalcyâ€ amid the destruction and confusion surrounding the end of the war. Taken together, the two wars and the intervening years of depression combine to make a "perfect storm" that lasted for forty years.

We consider a model where investors can invest directly or search for an asset manager, information about assets is costly, and managers charge an endogenous fee. In equilibrium, the efficiency of asset prices is linked to the efficiency of the asset management market: (1) if investors can find managers more easily then more money is allocated to active management, fees are lower, and asset prices are more efficient; (2) as search cost diminish, asset prices become efficient in the limit, even if information-collection costs remain large; (3) managers of complex assets earn larger fees and are fewer, and such assets are less efficiently priced; (4) good managers outperform after fees, bad managers underperform after fees, and the net performance of the average manager depends on the number of "noise allocators."

The vast empirical literature on investor protection provides much convincing evidence on its effects on stock mean-returns, return volatilities and interest rates. In this paper, we develop a dynamic asset pricing model of investor protection which sheds light on the empirical regularities and uncovers the possible underlying economic mechanisms at play. Our model features a firm owned by a minority shareholder and a controlling shareholder who can divert a fraction of the firm’s output. The diverted fraction is constrained by investor protection and also imposes non-pecuniary costs to the controlling shareholder. Our findings provide support for the empirical evidence on asset prices and are as follows. We find that the controlling shareholder's stock holding is larger with poor investor protection than that with full protection. We demonstrate that the stock mean-return decreases with poor investor protection in equilibrium. We also show that the equilibrium stock return volatility is higher with imperfect protection than that with full protection. Moreover, we find that interest rates decrease with lower protection. More generally, the effects of investor protection tend to be stronger when the controlling shareholder has a low share of the aggregate consumption.

We develop a dynamic model of liquidity provision, in which hedgers can trade multiple risky assets with arbitrageurs. We compute the equilibrium in closed form when arbitrageurs’ utility over consumption is logarithmic or risk-neutral with a non-negativity constraint. Liquidity is increasing in arbitrageur wealth, while asset volatilities, correlations, and expected returns are hump-shaped. Liquidity is a priced risk factor: assets that suffer the most when liquidity decreases, e.g., those with volatile cashflows or in high supply by hedgers, offer the highest expected returns. When hedging needs are strong, arbitrageurs can choose to provide less liquidity even though liquidity provision is more profitable.

We develop an asset pricing model with rich heterogeneity in asset demand across investors, designed to match institutional holdings. The equilibrium price vector is uniquely determined by market clearing for each asset. We relate our model to traditional frameworks including Euler equations, mean-variance portfolio choice, factor models, and Fama-MacBeth regressions. Because the asset demand system cannot be estimated consistently by least squares in the presence of price impact, we propose two identification strategies, based on a coefficient restriction or instrumental variables. We apply our model to understand the role of institutions in stock market movements, liquidity, volatility, and predictability.

I study how lenders develop alternative enforcement mechanisms to overcome weak creditor rights. Using data from a large agribusiness lender in Brazil, I examine the construction of grain silos that enable the lender to offer a credit contract that is repaid in grain. As a result, the lender improves collateralization of its loans and significantly increases lending. The effects are stronger for municipalities with weaker courts, financially-constrained borrowers, areas exposed to more weather risk, and periods of high commodity price volatility. Thus, I uncover a new mechanism, accessed by expanding firm boundaries, to facilitate debt financing.

We examine the effect of ownership and governance structures on what is arguably a firm's most valuable asset: its reputation. We model reputations based on alterable organizational and structural firm characteristics rather than the personal characteristics of the management team. We show that, in some cases, delegated "professional" management combined with outside shareholder governance supports reputable firm behavior even when owner management cannot. The option to reform after a reputation is damaged further increases the advantage of delegated management because the reform option reduces the ability of owner managers to commit ex ante to reputable behavior.

Which security does a firm optimally issue when it is more optimistic than its financiers about the characteristics of the asset? In our basic model, either debt or debt plus barrier options are optimal. When multiple assets with identical characteristics are available, pooling can be strictly preferred to selling optimal securities backed by the individual assets. When investors disagree amongst themselves, selling multiple tranches can be optimal. In a stylized dynamic extension, convertible securities commonly used in VC financing naturally emerge.

What is the effect of cash injections during financial crises? Exploiting variation arising from random weather shocks during the 1980s Farm Debt Crisis, we analyze and measure the effect of cash injections on the real and financial sector. Cash injections are shown to have significant economic impact on a host of outcomes including asset prices, loan delinquency rates, and the probability of bank failure. Further, we measure how cash injections affect local-level labor markets, analyzing the impact on employment and wages both within and outside of the sector receiving injections.

We develop asymptotic theory for strategic network-formation models under the assumption that the econometrician observes a single large pairwise-stable network. Drawing on new techniques in the random-graphs literature, we derive sufficient conditions for an unconditional weak law of large numbers for a useful class of network moments. Under these conditions, the model generates realistic networks that are sparse and may contain "giant" connected subnetworks, two well-known properties of real-world social networks. The conditions also conveniently suggest a new method to simulate counterfactual networks that avoids a well-known curse of dimensionality. Lastly, we characterize the identified set of structural parameters based on a tractable class of pair-level network moments and construct consistent estimators.

Knowledge of the relevant linkages between individuals is usually necessary for the estimation of social interaction models. We obtain results that allow for the estimation of parameters of interest in such models without information on the relevant linkages. Our identification analysis relies on usual assumptions on the nature of interactions found in, e.g., Bramoulle, Djebbari and Fortin (Journal of Econometrics, 2009). To obtain identification we further impose conditions on the density of links and repeated observation of outcomes for a given group of individuals. We provide an estimation strategy which we investigate via simulations and an empirical illustration.

This paper provides estimation methods for network formation models using observed data of a single large network. We characterize network formation as a simultaneous-move game with incomplete information and allow for the effects of indirect friends such as friends in common, so the utility from direct friends can be nonseparable. Nonseparability poses an challenge in the estimation because each individual then faces an interdependent multinomial discrete choice problem where the choice set increases with the number of individuals n. We propose a novel method to linearize the utility and derive the closed form of the conditional choice probability (CCP). With the closed form CCP, we show that the finite-player game converges to some limiting game as n goes to infinity. We propose a two-step estimation procedure using the equilibrium condition from the limiting game. The estimation procedure makes little assumption on equilibrium selection, is computationally simple, and provides consistent and asymptotic normal estimators for the structural parameters. Monte Carlo simulations show that the limiting game approximates finite-player games well and can provide accurate estimates.

Models where utility depends on the difference between the consumed quantity vector and a vector of perceived minimum "needs" go back to Samuelson (1947). We model peer effects by letting the average consumption of one's peers affect the quantity vector that defines one's perceived needs. We show how dollar costs of these peer effects on welfare can be obtained in these models. In addition to the usual obstacles to identification in peer effects models, here only a small number of members of each peer group are observed, so true mean group consumption levels cannot be consistently estimated. We propose and apply a new identification and estimation strategy for spatial or social interactions data to deal with the resulting identification problems. We implement our model with Indian household-level consumption microdata. We find that peer effects are important for luxuries and not necessities. Our estimates imply that, in terms of utility, the cost of "keeping up with the Joneses" effects equaled about about 15% of total Indian GDP growth from 1994 to 2010. Samuelson (1947) and Gorman (1976) propose models where an individual's perceived "needs" are represented by a quantity vector of goods. People get utility from the difference between the quantity vector they actually consume and this quantity vector of needs. We model peer effects in consumption choices (e.g., "keeping up with the Joneses") by letting the average consumption of one's peers affect the quantity vector that defines one's perceived needs. The resulting model is an example of a social interactions or spatial regression framework, where the quantity one consumes of goods, particularly luxuries, depends not only on one's own budget and other characteristics, but also on the average consumption of luxuries and/or other goods consumed by one's peers.

We present a flexible model of wage dynamics where information about job openings is transmitted through social networks. The model is based on Calvo-Armengol & Jackson (2004, 2007) and extends their results outside the stationary distribution, and under observed and unobserved heterogeneity. We present an empirical application using the British Household Panel Survey by exploiting direct information about individual’s social networks. We find that the distribution of job offers is positively affected by the employment status of an individual’s friends, and that this relationship is stronger for women.

This paper considers in-sample prediction and out-of-sample forecasting in regressions with many exogenous predictors. We consider four dimension reduction devices: principal components, Ridge, Landweber Fridman, and Partial Least Squares. We derive the rate of convergence of the prediction error for two representative models: a mildly sparse model and an approximate factor model. The theory is developed for a large cross-section and a large time-series. We also propose data-driven selection methods based on cross-validation and establish their optimality. Monte Carlo simulations and an empirical application to forecasting inflation and output growth in the U.S. show that data-reduction methods outperform conventional methods in several relevant settings, and might effectively guard against instabilities in predictors' forecasting ability.

We investigate whether legally restricting elected leadership positions to candidates with “desirable” characteristics leads to wider adoption of those characteristics by constituents in a low-income democracy with high political participation. Exploiting quasi-experimental variation in legal fertility limits on village council members in India, we find that married couples of childbearing age in rural areas reduced their fertility in response to the limits. However, the fertility decline was concentrated among wealthier, more educated, and upper-caste households, raising concerns regarding political representation of the disadvantaged and elite capture of societal resources. The fertility limits also increased the already male-biased sex ratio at birth in socioeconomic groups with strong son preference. Restricting access to elected leadership to achieve social objectives therefore has potentially adverse consequences for inequality, if institutions driving discrimination are not taken into account.

Ethnicity has received increased attention in studies of Africa's economic and institutional development. We present evidence on the long-term effects of Britain's ``divide-and-rule'' colonial strategy that deliberately fostered ethnic rivalries to weaken and control locals. Using micro data from Sub-Saharan Africa, we find that citizens of Anglophone (as compared to Francophone) countries are more likely to: (1) attach greater importance to ethnic identity (vis-à-vis national identity); (2) have weaker norms against tax evasion; and (3) face extortion by non-state actors. We address endogeneity concerns using IV regression and regression-discontinuity. These results suggest that Britain's divide-and-rule strategy may have undermined state-building.

This paper provides novel evidence on a particular real cost of political interference on banks — preferential lending to politically important sectors crowds out lending to other sectors in the economy. Analyzing staggered state elections in India, I show that politicians influence banks to increase lending to farmers before elections, which crowds out lending to manufacturing firms. These lending distortions are larger in locations where farmers have more political weight. Comparing firms in states that have an election in a given year against comparable firms in states that do not, I find that the reduced availability of bank credit forces firms to use up their cash reserves, reduce production, lay off workers, and operate at lower utilization rates. Overall, my results suggest that interference from the political environment can lead to costly crowding-out of real firm activity.

The Indian capital controls permit foreign currency borrowing (FCB)for firms with low credit risk, and by 2013, there was a stock of borrowing of $132 billion. Through a combination of home bias and capital controls, FCB is the preserve of large and internationally active firms with low financing constraints. We establish a quasi-experimental design through which the causal impact of FCB upon future growth in capital, labour, exports and output is assessed. The two doublings of exchange rate flexibility in India, in 2003 and 2007, appear to have avoided moral hazard: the firms which have undertaken FCB have successfully achieved modest gains in capital stock and output.

It is well known that new businesses are typically much smaller than their established industry competitors, and that this size gap closes slowly. We show that even in commodity-like product markets, these patterns do not reflect productivity gaps, but rather differences in demand-side fundamentals. We document and explore patterns in plants’ idiosyncratic demand levels by estimating a dynamic model of plant expansion in the presence of a demand accumulation process (e.g., building a customer base). We find active accumulation driven by plants’ past production decisions quantitatively dominates passive demand accumulation, and that within-firm spillovers affect demand levels but not growth. This demand accumulation process has important implications for ongoing research in fields as diverse as industrial organization, macro, finance, and trade.

The United States has experienced a secular decline in entrepreneurial activity, a decline that intensified during the Great Recession. Younger and smaller businesses were hit especially hard in the Great Recession, and have been slow to recover. Credit conditions are a potentially important factor in this development. Recent evidence shows, for example, that states with the largest declines in housing prices also experienced the largest declines in activity by young and small businesses. We build on this work and investigate several mechanisms and channels whereby credit market conditions affect entrepreneurial activity. Home equity and consumer credit may be quite important for some industries and business types, whereas lending collateralized by business assets might matter for others. Household balance sheets may matter acutely for the youngest firms (i.e., at the point of startup). Financing from banks is likely important for other types of firms and perhaps later in the life cycle of young firms. Venture capital is an important source of finance for a small fraction of young firms with high growth potential. We also explore a related but distinct channel whereby uncertainty in financial markets contributed to the adverse outcomes for young and small businesses. We investigate the role of these financial market factors for young and small businesses by exploiting variation across industries and locations. We integrate data from several sources. For tracking entrepreneurial activity, we rely on data from the Business Dynamic Statistics (BDS) and the Quarterly Workforce Indicators (QWI). For credit market conditions, we use data on small business loans, home prices and home equity, and consumer debt. We also construct measures that capture the impact of uncertainty shocks on firm-level credit spreads that vary by broad groups such as industry, firm size and firm age.

Why do firms choose different wage-setting practices and how do they affect firm dynamics over the business cycle? We introduce a novel theory for explaining the take-up of performance pay versus fixed wage contracting across industries. Firms with lower adjustment costs face a greater option value associated with investment before observing actual product demand, whereas firms with higher adjustment costs benefit by locking in contracts in advance to hedge against cyclical uncertainty. Using new panel establishment-level data from the National Compensation Survey, together with the Quarterly Census on Employment and Wages, in the United States between 2004-2014, we document new stylized facts about the relationship between contractual choices and firm dynamics over the business cycle. We test our theory by quantifying the effects of business cycle shocks on both performance pay and fixed wage establishments. Our baseline identification strategy exploits within-establishment deviations in the fraction of performance pay workers and metropolitan changes in employment.

Who fares worse in an economic downturn, low- or high-paying firms? Different answers to this question imply very different consequences for the costs of recessions. Using U.S. employer-employee data, we find that employment growth at low-paying firms is less cyclically sensitive. High-paying firms grow more quickly in booms and shrink more quickly in busts. We show that this is accounted for by a greater reduction in separations from low-paying firms in busts, and especially from separations that are likely voluntary. This suggests that a partial collapse of the job ladder (upward progression toward higher paying firms) during downturns is the most likely driver of our results. We estimate that workers at the lowest paying firms are 20% less likely to advance in firm quality in a bust compared to a boom. We also find that workers matching to firms in a downturn achieve only half the advancement in firm quality that a worker matching in a boom experiences within the first year. Thus job composition can potentially account for some of the lasting negative impacts on workers forced to search for a job in a downturn, such as displaced workers and recent college graduates.

Intermediation is a prominent feature of economic production and exchange. <br /> Two features of intermediation are salient: coordination among traders <br /> between the `source' and the `destination' and competition between <br /> alternative combinations of intermediaries. We develop a simple model to <br /> study these forces and we test the theoretical predictions in experiments. <br /> <br /> Our theoretical analysis yields a complete characterization of pricing <br /> equilibrium in networks. There exist both efficient and inefficient <br /> equilibria, suggesting a key role of coordination among intermediaries. <br /> Strategic interaction leads to either buyer and seller retaining all surplus <br /> or intermediaries extracting all surplus. We develop conditions on network <br /> structure under which these different extremal outcomes arise, respectively. <br /> <br /> Laboratory experiments show that efficiency prevails in almost all cases: so <br /> traders are successful in coordination. Subjects coordinate on extreme <br /> surplus division. Finally, experiments highlight the role of network <br /> structure in determining division of surplus between traders<br />

We test different forms of communication with different network structures. One case involves no communication, another involves closed (simple and exogenous) communication, and a third involves open (chat) communication. Using a 3x3 matrix, with two pure-strategy equilibria and one Pareto-superior non-equilibrium, we find that both the form of communication and the network structure affect behavior.

We randomly invite households in rural Indian villages to participate in a study in which they can earn roughly a day's wages, and study how information about that opportunity diffuses. In particular, we examine strategic information diffusion. Slots in the study are limited and rationed among those who show up, information about the opportunity is something that individuals may wish to share with their friends, but would prefer not to have spread beyond their friends. We find that people are significantly more likely to tell their less central friends about the opportunity than their more central friends, controlling for other characteristics.

We investigate a mechanism that facilitates the provision of public goods in a network formation game. We show how competition for status encourages a core player to realize efficiency gains for the entire group. In a laboratory experiment we systematically examine the effects of group size and status rents. The experimental results provide very clear support for a competition for status dynamic that predicts when, and if so which, repeated game equilibrium is reached. Two control treatments allow us to reject the possibility that the supergame effects we observe are driven by social motives.

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We estimate the economic surplus created by Medicare Advantage under its reformed competitive bidding rules. We use data on the universe of Medicare bene…ciaries, and develop a model of plan bidding that accounts for both market power and risk selection. We estimate that private plans have costs around 12% below fee-for-service costs, and generate around $50 in surplus on average per enrollee-month, after accounting for the disutility due to enrollees having more limited choice of providers. Taxpayers provide a large additional subsidy, and insurers capture most of the private gains. We use the model to evaluate possible program changes.

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This paper conjectures that economics has changed profoundly since the 1970s and that these changes involve a new understanding of the relationship between theoretical and applied work: as the discipline became more applied, applied work was being accorded a higher status in relation to pure theory than was previously the case. This change is visible in John Bates Clark medal citations as well as in the debates surrounding the elimination of the “theory” category from the JEL classification for economic literature. Yet, these also suggest tensions in the meaning of “applied” research (the application of abstract theory to answer specific problems; empirical research; policy work). The paper presents various types of applied work, and discusses possible explanations for its changing status relative to theory: the rise of “big data” and computerization; the displacement of general equilibrium theory by game theory or experimental and behavioral economics; the rise of non academic institutions such as central banks, the IMF, the World Bank or the NBER; the “challenge of relevance” resulting from the upheavals of civil societies.

While historians of economics have noted the transition toward empirical work in economics since the 1970s, less understood is the shift toward "quasi-experimental" methods in applied microeconomics. Angrist and Pischke (2010) trumpet the wide application of these methods as a "credibility revolution" in econometrics that has finally provided persuasive answers to a diverse set of questions. Particularly influential in the applied areas of labor, education, public, and health economics, the methods shape the knowledge produced by economists and the expertise they possess. First documenting their growth bibliometrically, this paper aims to illuminate the origins, content, and contexts of quasi-experimental research designs, which seek natural experiments to justify causal inference. To highlight lines of continuity and discontinuity in the transition, the quasi-experimental program is situated in the historical context of the Cowles econometric framework and a case study from the economics of education is used to contrast the practical implementation of the approaches. Finally, significant historical contexts of the paradigm shift are explored, including the marketability of quasi-experimental methods and the 1980s crisis in econometrics.

This paper analyzes several early applied experimental economics projects Charles Plott, Vernon Smith and their associates conducted at the California Institute of Technology (Caltech) and University of Arizona in the 1970s and 1980s. These projects ranged from the allocation of airport landing slots for the Civil Aeronautics Board in the wake of US airlines deregulation and the regulation of the dry bulk commodity transportation industry on inland waterways for the Department of Transportation, to the anti-trust case against the producers of lead-based antiknock compounds, the regulation of pricing of natural gas transmission, electric power networks and their deregulation, allocation of the right to use railway tracks and the allocation of resources on a space station. This partial list demonstrates the breadth of regulatory problems to which experimental methods were applied as well as suggests the importance of such projects to the early experimentalists. In particular I focus on the case of the allocation of airport landing slots to tackle two related historiographic issues – the operationalization of applied research through experimentation and the reception of applied experimental research by the wider economics profession.

Environmentalism in the United States historically has been divided into its utilitarian and preservationist impulses, represented by Gifford Pinchot and John Muir, respectively. Pinchot advocated conservation of natural resources to be used for human purposes; Muir advocated protection from humans, for nature's own sake. In the first half of the 20th century, natural resource economics was firmly in Pinchot's side of that schism. That position began to change as the post-war environmental movement gained momentum. In particular, John Krutilla, an economist at Resources for the Future, pushed economics to the point that it could embrace Muir's vision as well as Pinchot's. Krutilla argued that if humans preferred a preserved state to a developed one, then such preferences were every bit as "economic." Either way, there were opportunity costs and an economic choice to be made.

Using data from British and American banks, we provide empirical evidence that government intervention affects banking globalization along three dimensions: depth, breadth and persistence. We examine depth by studying whether a bank’s preference for domestic, as opposed to external, lending (funding) changes when it is subjected to a large public intervention, such as bank nationalization. Our results suggest that, following nationalization, non-British banks allocate their lending away from the UK and increase their external funding. Second, we find that nationalized banks from the same country tend to have portfolios of foreign assets that are spread across countries in a way that is far more similar than either private banks from the same country or nationalized banks from different countries, consistent with an impact on the breadth of globalization. Third, we study the Troubled Asset Relief Program (TARP) to examine the persistence of large government interventions. We find weak evidence that upon entry into the TARP, foreign lending declines but domestic does not. This effect is observable at the aggregate level, and seems to disappear upon TARP exit. Collectively, this evidence suggests that large government interventions affect the depth and breadth of banking globalization, but may not persist after public interventions are unwound.

We investigate optimal strategic monetary policy under incomplete markets. The setting is a two-country model in which each country specializes in producing a traded good. Policymakers have a strategic incentive to manipulate their terms of trade. We characterize optimal policy as a targeting rule. The targeting rule essentially compares the tradeoffs among objectives of the policymaker relative to the complete market efficient outcome. This derivation requires finding optimal non-cooperative policy under complete markets, which involves each policymaker implementing policies that move prices of state-contingent claims to increase its own residents' wealth at the expense of foreigners' wealth.

We assess the properties of currency value strategies based on real exchange rates in a cross-sectional setting. We find that real exchange rates have considerable predictive power for the cross-section of currency excess returns. However, adjusting real exchange rates for key country-specific fundamentals - productivity, the quality of export goods, net foreign assets, and output gaps - generates a more refined measure of currency value that is more closely linked to currency risk premia. Accounting for macroeconomic fundamentals considerably enhances the predictive power of currency value measures for currency excess returns.

We identify a set of country macroeconomic fundamentals, whose first and higher-order moments have predictive power for currency excess returns. We use this identification to form ‘high minus low’ portfolios of profitable currency excess returns and then study the determinants of their cross- sectional behavior. This analysis makes three points. First, to understand the cross-section of these currency excess returns with macroeconomic risk factors requires a multi-factor model. Second, since the excess returns are not exclusive to investors with a U.S. domicile, the macro risk factors are global in nature. Third, the risk factors priced into the excess returns include the volatility of the global macro variables. When global uncertainty increases, weak currencies fall and strong or safe haven currencies rise so shorting the weak and going long the strong results in large excess returns.

The crisis in the Eurozone has been the greatest failure in the history of European integration. Trillions of dollars in accumulated debts have confronted the member states with a difficult set of inter-state and domestic problems, largely to do with the distribution of the burden of economic adjustment in the light of a decade of ill-advised lending and borrowing. To the discredit of both national governments and European institutions, conflict has dragged on for years – and still continues – with no real resolution. Possible Pareto improvements have fallen by the wayside as countries maneuver to shunt as much of the adjustment burden as possible onto their partners, and as groups within countries do the same domestically.

Rather then speaking of the Eurozone crisis, the paper suggests speaking of Eurozone crises. By taking the financial crisis of 2008 as a starting point, the idea is to distinguish between crises outside the Eurozone and inside the Eurozone. Outside crisis like the one in the UK take a different route then crises inside the Eurozone. Also, not all member states of the Eurozone were in the same ways entangled with the fall outs of the financial crisis, and thus differ in their post-financial crisis path, despite sharing the same institutional features like the crisis-prone member states.

In 2004 ten new European Union member states were added to the existing EU of fifteen. All ten were required by their accession treaty to join the euro at some point. Various member states joined sooner for example Slovenia, Cyprus and Malta. Others, such as the Baltic States were keen to join sooner but were disallowed because the European Commission found them not meeting the criteria. The largest three member states first were keen to join fast but their interest diminished as time went by. <br /><br /> This paper presents an analysis of euro adoption policies in these ten member states. It builds on research done by Dandashly and Verdun (forthcoming) that studies various different theoretical insights into understanding the results. The analysis looks at: cost benefit analysis; meeting the convergence criteria; political economy insights (exchange rates, trade, openness) and domestic political veto players, the stance of government and opposition and the role of the central bank. This paper compares competing explanations of the speed of euro adoption and suggests that a domestic politics approach is best able to explain why some countries join the euro fast whilst others are much slower.

The EU legislative process is complex as it involves several mechanisms which interact with each other in a non-trivial fashion. We use simulation models to detect which subset of a long-list of mechanisms describes the EU legislative process the best. The players in our simulations are the Commission, the European Parliament, and the Member States. By assumption, Member States affect the process only through their influence in the Council of the European Union. We compare the simulation results to observed outcomes of the legislative process and use machine-learning algorithms to identify the most important mechanisms at play. The model is currently in the pilot stage. Our pilot-stage results reveal that processes of assimilation, changing the proposal, and of learning the equilibrium, are important mechanisms in the EU decision-making process.

The 2008 crisis started as a financial crisis and evolved into a sovereign debt crisis. Since 2008, central banks, governments and international organizations have been working on the lessons learned as well as designing options for a new financial framework. From the Dodd-Frank Act in the United States to Basel III, the international financial world has seen relevant changes. In Europe, the 'Banking Union' was passed. In itself, it is already an interesting reform. But beyond the primary objective of the Banking Union, which is to ensure financial stability, there is also a second feature: it deepens the European integration providing a response to the critics of the European project. Now equipped with an internal market of goods, services, including financial services, the question is to know whether the EU has fixed its structural issues in terms of governance. If a new crisis were to hit Europe, would the latter be better prepared to respond? Another question is to know whether this new framework would reduce the systemic risk and thus would reduce either the likelihood or the magnitude of a crisis?

In 2009, the Japanese government mandated a short hour option for workers with children under the age of three who were employed at firms with at least 101 workers. In addition, by 2005, firms with at least 301 workers were required to register plans to improve work-family balance. This paper provides a causal analysis of the effects of both mandates on childbirth and parental leave-taking, using data from the 2002-2011 waves of the Panel Survey of Young Adults of 21st Century collected by the Ministry of Health, Labor and Welfare. I exploit exogenous variation in the mandate laws. Using difference-in-difference methods, I find the both policies increased strong birth inten among working females with no children. We also found robust evidence that the shor ur option increased the first, second and third birth of working mothers with high birth intention. The effect was strong for the highly educated. Mandating work flexibility significantly reduced the cost of childbirth, increased birth intention and birth among working mothers.

This paper provides quasi-experimental evidence on the impact of paid leave legislation on fathers’ leave-taking, as well as on the division of leave between mothers and fathers in dual-earner households. Using difference-in-difference and difference-in-difference-in-difference designs, we study California’s Paid Family Leave (CA-PFL) program, which is the first source of government-provided paid parental leave available to fathers in the United States. Our results show that fathers in California are 0.9 percentage points—or 46 percent relative to the pre-treatment mean—more likely to take leave in the first year of their children’s lives when CA-PFL is available. We also examine how parents allocate leave in households where both parents work. We find that CA-PFL increases father-only leave-taking (i.e., father on leave while mother is at work) by 50 percent and joint leave-taking (i.e., both parents on leave at the same time) by 28 percent. These effects are much larger for fathers of sons than for fathers of daughters, and almost entirely driven by fathers of first-born children and fathers in occupations with a high share of female workers.

To motivate fathers to take parental leave, several nations have reformed their leave programs to increase compensation and reserve some leave for fathers. Though take-up has increased, it is unclear whether fathers are responding to financial incentives or changed constraints or the 'daddy-only' labels. Moreover, although paternity leave may facilitate temporary changes in the division of household labor, little is known about whether these effects persist in later years. This paper examines these issues while studying the Quebec Parental Insurance Program (QPIP), a landmark reform to parental leave that increased benefits for all parents and reserved some weeks for fathers. I exploit plausibly exogenous program variation and data on benefit claims to first explore the short-run effects on leave behavior. Both regression discontinuity and difference-in-difference analyses suggest that QPIP increased fathers' participation rates b 0% and leave duration by 150%. Further, I find novel evidence of an intra-household fly er effect stemming from the 'daddy-only' label: benefits stick to fathers even when the constraint does not bind and the 'daddyonly' benefits are essentially fungible with the mothers'. Next, I investigate the long-term consequences on household dynamics by analyzing time-diary data and exploiting variation in exposure to QPIP across provinces, time and the age of one's children. This paper presents the first comprehensive evidence that exposure to paternity leave can have a large and persistent effect on the division of household labor: households exposed to QPIP are markedly less sex specialized in their time allocations, earnings and labor supply.

30. Paper/Topic 4 Abstract This paper investigates the effects of a large-scale paid maternity leave program on birth outcomes in the United States. In 1978, states with Temporary Disability Insurance (TDI) programs were required to start providing wage replacement benefits to pregnant women, substantially increasing access to paid leave for working mothers. Using natality data, I find that TDI coverage of paid maternity leave reduces the share of low birth weight births in a state by 3.2 percent, and the estimated treatment-on-the-treated effect is over 10 percent. TDI paid maternity leave also decreases the likelihood of early term birth by 7.2 percent. Paid maternity leave has particularly large impacts on the children of unmarried and black mothers.

The new generation of city minimum wage policies poses unique challenges for researchers attempting to assess their economic impacts. Traditional datasets often do not have sufficient samples sizes. City-based wage setting means that regional economic models are needed to assess net economic impact. Most important, recent city laws adopt significantly higher percentage increases in the minimum wage than have been implemented to date in the US. This means that researchers have less empirical research evidence on which to base their modeling. It also means that new substantive questions arise; for example, the impact on nonprofit organizations that rely mainly on fixed public funding streams. We discuss these and other challenges based on our recent prospective impact studies of four California cities.

Although the minimum wage’s effects on employment have been much-studied, little is still known about its effects on prices. Yet price effects are central to understanding how 1) businesses absorb minimum wages and 2) how minimum wages affect consumers of services that low-wage workers provide. We study the effects of minimum wages on prices, drawing on restaurant menu data we collected before and after San Jose implemented a minimum wage in March 2013. The new minimum was then 25 percent above the state's minimum wage. We present results separately for fast food and full service restaurants, by the data source, and by distance from the San Jose border.

The $15 citywide minimum wages recently enacted by Los Angeles, San Francisco and Seattle are significantly higher than the federal and state minimum wages of the past two decades, whether measured by level, ratio to median wage, or bite (the proportion of workers getting raises. Past minimum wage studies may therefore not be informative of effects at the higher level. In this paper I discuss a structural model that can shed light on effects at $15. The model incorporates substitution effects(automation), scale effects (higher prices reduce consumer demand)and income effects (higher wages increase consumer demand). The Berkeley IRLE minimum wage team has estimated such a model for Los Angeles. I present the results, with special attention to the parameters and the areas of uncertainty.

This paper reviews the variety of approaches to minimum wage compliance and enforcement at the federal, state and city levels. It then focuses on best practice compliance and enforcement issues, drawing especially upon San Francisco’s Office of Labor Standards and Enforcement. We describe the office’s mandate, resources, approach and accomplishments, including a comparison to other enforcement agencies. We then outline the efforts in education and outreach that are crucial to compliance and enforcement, including the role of community based organizations. A final section concludes by looking at lessons for other jurisdictions and remaining allenges.